Use application tax options to update migrated tax setup or to create new tax setup based on the Release 11i defaulting hierarchy model. You can use the Release 11i model to default a tax classification code to a transaction line. E-Business Tax uses the tax classification code as a determining factor in tax applicability and tax rate for the tax or taxes associated with the transaction, according to the definition of the appropriate direct tax rate determination rule.

For migrated Receivables transaction tax data, you can also manage these application tax options:

• Customer tax exemption override

• Service provider override

• Latin Tax Engine options

E-Business Tax creates application tax options for Release 11i migrated data by combinations of operating unit and application. These application tax options reflect the setup as defined in Payables, Purchasing, Receivables, and Projects. You can update this setup according to your requirements. Application tax options always apply to a combination of operating unit and application, even if the operating unit uses the subscription of the legal entity.

A defaulting hierarchy specifies both the sources to use for tax classification codes and the order in which E-Business Tax searches these sources to find a valid tax classification code at transaction time. If E-Business Tax cannot find a valid tax classification code within the hierarchy, or if a defaulting hierarchy is not defined for the applicable operating unit/application, then you can optionally enter a tax classification code on the transaction line. If you do not enter a tax classification code on the transaction line, then the direct tax rate determination rule that is based on tax classification does not apply.

The migrated entities associated with defaulting hierarchies for operating unit/application combinations retain the tax code that was originally assigned in the Release 11i application as a tax classification code. In some cases, you can update the tax classification code assignment or create a new assignment. The tables below indicate for each application where you can update/enter tax classification codes.

Oracle Payables/Purchasing/Internet Expenses

Oracle Receivables

Oracle Projects

After you create or update the application tax options that you want, you must enable migrated direct tax rate determination tax rules or set up new tax rules that use tax classification codes as determining factors. See: Using Direct Tax Rate Determination for more information.

Prerequisites

Before you can create or update application tax options, you may need to complete one or more of these tasks:

• Set up tax classification lookup codes. (optional)

• Enable tax exemptions for the applicable taxes. (optional)

These task descriptions refer to creating new application tax options. The same steps apply to updating existing application tax options. Use the Application Tax Options page to select the operating unit/application that you want to update.

To set up application tax options (excluding Receivables):

1. Navigate to the Create Application Tax Options page.

2. Enter the operating unit and application name.

3. Select the defaulting order hierarchy for this operating unit/application combination. The length of the available hierarchy reflects the Release 11i application hierarchy.

4. If the defaulting order includes the Oracle Payables Financial Option or the Oracle Receivables System Option, enter the financial options tax classification to assign to this default.

To set up Receivables application tax options:

1. Navigate to the Create Application Tax Options page.

2. Enter the operating unit and the application name Receivables.

3. Select the tax determination method Oracle E-Business Tax or Latin Tax Engine.

   Attention: Selecting a tax determination method is an irreversible process.

   If you selected Latin Tax Engine, go to step 8.

4. Select the defaulting order hierarchy for this operating unit.

5. If the defaulting order includes the Oracle Receivables System Option, enter the financial options tax classification to assign to this default.

6. If applicable, enable the Allow Override and Entry of Customer Exemptions option. To use customer tax exemptions, you must also complete these setups:

   • Set up tax exemptions for the applicable customers. See: Setting Up Tax Exemptions for more information.

   • Enable tax exemptions for the applicable taxes. See: Setting Up Tax Regimes for more information.

   • Enable the Allow Exemptions option for the applicable configuration owners. See: Setting Up Configuration Owner Tax Options for more information.

7. If you use Taxware for tax calculation on Order to Cash transactions, enter a value for the Override Geocode for Taxware.

   Taxware uses a two or nine digit code when the state, city, and zip code do not uniquely identify a tax jurisdiction. E-Business Tax uses the value you enter here to determine the point of order acceptance (POA) when calculating tax, if there is no tax jurisdiction code defined.

8. If applicable, enter the Receivables system options tax classification code to assign to this operating unit for Latin Tax Engine tax determination and calculation.

9. Enter the tax rounding information to use for transactions for this operating unit that are calculated using the Latin Tax Engine.

Inactivating a Defaulting Order

You can inactivate the tax classification defaulting order for a specific operating unit and application. Enable this option when you no longer want to use tax classification codes in tax determination and tax calculation for transactions belonging to an operating unit and application combination.

Inactivating a defaulting order is an irreversible process. Once an operating unit and application defaulting order is inactivated, you cannot reactivate the same defaulting order nor can you create a new defaulting order for this combination of operating unit and application.