Set up tax exceptions to apply special tax rates to products. At transaction time, E-Business Tax determines whether the tax exception applies to the transaction line for the product and, if so, uses the applicable exception rate.
Depending on your requirements, you can use product tax exceptions instead of setting up tax rules for product types. You can set up these tax exceptions for products:
Discount. A reduction of the base tax rate.
Surcharge. An increase to the base tax rate.
Special Rate. A rate that replaces the base tax rate.
In E-Business Tax, a tax exception must belong to a combination of tax regime, configuration owner, and tax. You can also assign tax exceptions to a tax status or tax rate belonging to the tax or to a tax jurisdiction. At transaction time, E-Business Tax uses the tax exception if the details of the transaction and the tax match all of the entities assigned to the tax exception. Only one tax exception can apply to a transaction line for a specific tax.
You can define Inventory organization tax exceptions for items, or you can define tax exceptions for Inventory-based or non-Inventory-based product fiscal classification types and fiscal classification codes. The product fiscal classification must have the same tax regime assignment as the tax exception. See: Setting Up Product Fiscal Classifications for more information.
You can create more than one tax exception for the same item/product fiscal classification and tax regime combination. At transaction time, E-Business Tax applies the most specific tax exception to the transaction in this order:
Item tax exception for tax rate and tax jurisdiction
Item tax exception for tax rate
Item tax exception for tax status and tax jurisdiction
Item tax exception for tax status
Item exception for tax
Product fiscal classification tax exception for tax rate and tax jurisdiction
Product fiscal classification tax exception for tax rate
Product fiscal classification tax exception for tax status and tax jurisdiction
Product fiscal classification tax exception for tax status
Product fiscal classification exception for tax
When you set up configuration options for first party legal entities and operating units, you can set a separate configuration option for the owning and sharing of product tax exceptions for a combination of party and tax regime. See: Setting Up Configuration Options for more information.
To set up tax exceptions, you must enable the Allow Tax Exceptions option at all applicable levels in the regime-to-rate flow, including tax regime, tax, tax status, and tax rate. See: Setting Up Tax Regimes for more information.
If necessary, use lookups to define additional tax exception reasons, according to your requirements or the requirements of the tax authority. See: Setting Up Lookup Codes for more information.
Before you can set up tax exceptions, you may need to complete one or more of these tasks:
Set up exception reason lookup codes. (optional)
Set up taxes. (mandatory)
Set up tax statuses. (optional)
Set up tax rates. (optional)
Set up tax jurisdictions. (mandatory, for jurisdiction-specific exceptions)
Set up inventory organizations. (mandatory, for item exception types)
Set up inventory items. (mandatory, for item exception types)
Set up fiscal classification types. (mandatory, for product fiscal classification exception types)
Set up fiscal classification codes. (mandatory, for product fiscal classification exception types)
To set up a tax exception:
Navigate to the Create Tax Exception page.
Enter the tax regime, configuration owner, and tax to which this tax exception belongs.
If applicable, enter the tax status, tax rate, and tax jurisdiction for this tax exception.
Select the exception type to use:
If this is an Item exception, enter the inventory organization and inventory item.
If this is a Product Fiscal Classification exception, enter the product fiscal classification type and fiscal classification codes for the item.
If the exception type is Product Fiscal Classification, then, if necessary, enter the numeric precedence level for this exception.
You must enter a precedence level if:
you associate the same item with two different product fiscal classification types;
and
you create exceptions for both of these product fiscal classification types.
Select the exception reason to use for this tax exception.
Enter the effective date range for this tax exception. Enter a date range that is within the effective period of the entities related to this tax exception: tax regime, tax, tax status, tax rate, and tax jurisdiction.
Select the exception rate type for this tax exception:
A Discount/Surcharge decreases/increases the original rate by the percentage you enter.
A Special Rate percentage replaces the original rate.
Enter the rate percentage to use for this tax exception. For example:
Discount - If the discount is 15% off the standard rate and the standard rate is 10%, enter 85. This defines a discount rate that is 85% of the original 10%, or 8.5%.
Surcharge - If the surcharge is 10%, enter 110. This defines a surcharge rate that is 110% of the original 10%, or 11%.
Special Rate - Enter the special rate percentage that replaces the standard rate. If the original rate is 10% and the special rate is 5%, enter 5.