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How to Setup Taxes in R12

Step 1: Create the Tax Regime

The tax regime is the highest/ultimate level that taxes are rolled up to, typically, a specific
country. In this step, the Controls and Defaults must be set. The Control section outlines 4
options. Once the tax is made live, the control options cannot be changed.

The Defaults section will default as applicable to the tax, status, jurisidiction, and tax rate levels,
but they can be changed at each level.

Step 2: Create the Tax

One Tax Regime can have multiple taxes defined under it. The tax type, e.g. sales, VAT, use, is
determined when the tax is set up. Taxes can be set up by geography type, which allows for taxes
at different levels.. For example, in the US, there is can be a tax levied at the State level, one at
the County level, and one at the City level.

Step 3: Create the Tax Status

This is used primarily in the UK to define reduced rate, zero rate, etc. taxes. All taxes must have
at least one tax status defined, and one of those must have the Set as Default Status option
checked.

Step 4: Create the Tax Jurisdiction

A tax jurisdiction is a geographic area for which a tax is levied, e.g. Colorado, California,
Florida, El Paso County, Los Angeles.

There must be at least one Tax Jurisdiction for each Tax Status with the Set as default Tax
Jurisdiction selected and the Default Effective Date supplied.

Step 5: Create the Tax Rate

Create specific tax rates to be applied for a geography. There must be at least one default tax
rate. The tax accounts are also set up in this step.

Step 6: Define Tax Rules

Set defaults for the following rule types:


Place of Supply

Registration

Taxable Basis

Calculate Tax Amounts

Step 7: Make the Tax Live for Transactions

Return back to the Tax created in step 2, and select the Make Tax Available for Transactions
option. If it is not available to be checked, the tax is not set up correctly. Any missed setups will
need to be completed before this can be setup.

E-Business Tax
Tax Authority
A government entity that regulates tax law, administers, or audits one or more taxes.
Tax Regime
The set of tax regulations that determine the treatment of one or more taxes administered by a
tax authority
Examples of a tax regime include:
A sales and use tax in the United States includes rules for state, county, and city sales and use
taxes.
An excise tax regime in India includes rules for excise tax and additional excise tax.
A VAT tax regime in Argentina includes rules for standard VAT, additional VAT, and
perception VAT.
Tax
A distinct charge imposed through a fiscal or tax authority
Examples of a tax include VAT for the United Kingdom and TVA for France.
Tax Jurisdiction
A geographical area where a tax is levied by a specific tax authority or where a specific tax rate
applies
Examples of tax jurisdictions include:
The tax jurisdiction for VAT in Germany is the country of Germany.
The tax jurisdiction for a San Jose city tax is the City of San Jose, California.
The tax jurisdiction for Provincial Goods and Services tax (PST) in Canada is a particular
Province, such as Ontario or British Columbia.
Tax Status
The taxable nature of a product or service in the context of a transaction for a tax type
Examples of a tax status include taxable standard rate, zero rated, exempt, and non-taxable. A tax
status is similar to the concept of the tax type definition used within Payables and receivables in
releases prior to Release12.
Tax Rate
The rate specified for a tax status in effect for a period of time. You can express the tax rate as a
percentage or as a value per unit quantity
An example of a tax rate is 7.5% for a state sales and use tax.
Recovery Rate
The rate of input tax that is allowed to be recovered or offset against output tax. The recovery
rate is applicable to VAT taxes. For example, organizations that only produce VAT applicable
goods and services can use 100% recovery rate on most purchases.
Organizations that produce VAT exempt goods and services, for example, financial institutions,
have a 0% recovery rate.
Operating Unit Tax Accounts
The tax accounts that the system uses to post the tax amounts derived from your transactions.
The tax accounts you define serve as default accounting information for taxes, tax rates, tax
jurisdictions, and tax recovery rates.

Naveed
// A new product in R12and a single point solution for managing transaction-based tax.
This article includes of the Features, Benefits and a comprehensive setup steps details of E-
Business tax. //

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