Configuration Document for US Sales Tax Calculation in SAP

Contents

Summary3Purpose of the document4Steps in Sales Tax Determination for US in SAP51.Check Calculation Procedure (Tax Schema)52.Assign Country to Calculation Procedure63.Specify the structure for Tax Jurisdiction Code74.Define Tax Jurisdictions.75.Define Tax Determination Rules86.Define Regional Codes97.Assign Delivering Plant for Tax Determination108.Define Tax relevancy of Master Records119.Define Tax Code1210. Maintain Pricing Procedure1311. Maintain Tax rates (Condition Records)1412. Assign Tax Jurisdiction Codes to Customer Master16

Summary

Any sales transaction has to take into account the taxes applicable. The key factors that determine taxes are the location of the delivery plant, the country and region of the customer, and the material and customer tax classifications. A tax condition appears in the pricing procedure as a condition type along with an account key, just like any other condition. This account key further maintains the link between SD and FI for tax posting to a tax GL account. Once customizing is done, we assign the tax classifications to customer and material master records. We set up the tax rates in the condition tables.

When a user creates a sales document, SAP reads the following:

Customer tax eligibility from the customer master Material tax relevance from the material master Departure country and location from the plant used in the sales document at the item level Destination country and location from the ship-to party record

SAP then determines the applicable tax percentage and tax code from the master records and applies this percentage to the sales document. During billing creation, SAP reads the pricing information from the sales document and service rendered date (Post Goods Issue date) from the delivery document anddetermines the applicable tax, based on settings. During the accounting posting of this billing document, the tax code and the account key determine the GL account to which the tax posting can be made.

Purpose of the document

This document purely focuses on Configuration of Sales Tax Determination for US in SAP. Purpose of this document is to go through the various configuration steps used in US Sales Tax Determination in SAP. The entire configuration depends upon the client for which we implement Tax Determination in SAP. In this document, standard configuration steps are covered which can vary according to clients requirements.In this document, along with configuration Master Records such as maintaining Tax Rates in SAP are also explained. These records are read while creating sales document in SAP and the values are posted in G/L account when Invoice is posted to accounting.Revenue Account Determination i.e. automatic assignment of G/L accounts to which tax will be posted is not covered in this document as this configuration would be already done while implementing SAP for client.

Steps in Sales Tax Determination for US in SAP

1. Check Calculation Procedure (Tax Schema)In this activity, we can check, and if necessary, change existing procedure for tax calculation. Calculation procedures containing the necessary specifications for the calculation and posting of taxes on sales/purchases have already been defined in the standard SAP system for certain countries. Every calculation procedure groups several tax types together into a condition type (for example, output tax or input tax) in the calculation procedure, and determines calculation rules for it.The calculation procedure determines for which amount the individual condition types are to be calculated.

Fig 1As shown in Fig 1, we have defined Tax Procedure TAXUST by coping standard tax procedure TAXUSJ.This procedure contains condition types for different tax types like A/P Sales tax Export (Input Tax), A/P Sales tax USE (Input Tax) and A/R Sales Tax (Output Tax).

Fig 2In Fig 2, A/R Sales Tax (Output Tax) condition types are highlighted. These condition types are for different levels of Sales Taxes applicable as per the Jurisdiction Code levels.2. Assign Country to Calculation Procedure

In this activity, we assign country to the Tax Procedure which is defined for that country.

Fig 3 Here we have assigned US to the Tax Procedure TAXUT which we have defined in previous step. Each country will be assigned to only one Tax Procedure.3. Specify the structure for Tax Jurisdiction Code

In this activity, we determine the structure of the tax jurisdiction code. This code is used for calculating taxes which are defined below the federal level (for example, US taxes, Canadian taxes). The tax jurisdiction code can be subdivided into a maximum of four levels (for example, state/county/city/district). This way the tax rate is defined per level and the tax value is calculated individually per level.Maximum length allowed for Tax Jurisdiction code structure is 15 characters.

Fig 4 We have defined new Tax Jurisdiction Schema TAXUST for STDL and used all four levels for the Jurisdiction Code structure. First four characters of the structure will indicate the first level of the Jurisdiction code; next four characters will indicate second level of the Jurisdiction code and so on.4. Define Tax Jurisdictions.In this activity, we specify the tax jurisdiction code per tax calculation procedure. The tax jurisdiction code consists of up to four parts depending on the tax jurisdiction code structure for the relevant calculation procedure: the state code, the county code, the city code, and a local code component. The system uses these component parts to determine the tax rate for each tax authority.

Fig 5 We have defined some sample jurisdiction codes for state, county and city level as shown in Fig- 5.5. Define Tax Determination Rules

5.1. Define Condition TypeIn this step first we have to define a Condition type for each tax type (e.g. Condition type for Output tax)

Fig 6 This Condition type will be part of pricing procedure upon which Condition Types for different Tax Jurisdiction level will be calculated. Please refer step no 10.

5.2. Assign Tax Categories to the Country.

In this step, Condition Type (Tax Category) defined in above step 5.1, will be assigned to the Country.Please refer Fig 7.

Fig 7

6. Define Regional Codes In this menu option, we define the following indicators for tax calculation:Country-specific regional codes (county codes), which represent, for example, states in the USA

Fig 8 This Region Code is used while maintaining Condition records for UTXJ Condition type (Please refer step 11.1.) Country-specific city codesWe define City codes for Regions in a country.

Fig- 9 These codes are used while specifying address in Customer Master and Plant creation.7. Assign Delivering Plant for Tax Determination

Since the delivering plant determines the source address, it is important to set up the address details.In this step we specify the complete address, including the country, region, county code, city code, and jurisdiction code, as required. Refer Fig 10

Fig 10 8. Define Tax relevancy of Master Records

In this step we define tax relevance for customers and materials for each tax category. We define tax relevance with the Tax Classification indicator in the master data. This Classification is the assigned to both the master data.Customer Master: For Customer Master we have two tax classifications as shown in Fig 11.

Fig 11 Material Master: For Material Master we have two tax classifications as shown in Fig 12

Fig 12

9. Define Tax Code

Tax codes are used to: Check the tax on sales/purchases amount in the document Calculate the amount of tax on sales/purchases automatically on request Check if a tax account with tax type (input or output tax) can be posted to Determine the tax accountEach code contains one or more tax rates for the different tax types.

Fig 13 Tax Code is defined for specific country in which company exists. Also we need to specify the jurisdiction code. We specify the type of tax code i.e. whether it is for Input Tax or Output Tax. After hitting Enter button, we can see the screen as shown in Fig-13. Here for Tax Code Z2, Tax Type is A- Output tax.10. Maintain Pricing ProcedureWe define a Pricing Procedure which contains all the condition types which represents components of the pricing. In the pricing procedure we assign our tax condition types which we use in Tax Procedure (Please refer step 1).This pricing procedure can be different for sales processes like Export sales Process can have different procedure than of Domestic Sales Process. It depends upon the clients requirement.Please refer Fig 14. JR1, JR2, JR3 and JR4 condition types are used for the different levels of the Tax Jurisdiction Code. Condition records of these condition types are calculated on the basis of UTXJ condition type which is statistical in nature.

Fig 14 11. Maintain Tax rates (Condition Records)

11.1. Condition Record for Tax Jurisdiction Code (UTXJ)In this procedure, we maintain the tax jurisdiction code condition records that are necessary for determining the tax code. The tax code in combination with the tax jurisdiction code determines the tax rate.The tax jurisdiction code condition record is created for condition type UTXJ and countryUS. For every region in which taxes are calculated, you must create a tax jurisdiction code condition record. Please refer Fig- 15. While creating condition record, we enter region code; tax classification for customer and tax classification for material (please refer step no. 8).

Fig 15 This UTXJ condition record is maintained as 100 %. This means that the value of UTXJ will be calculated on Base Price and this value will be considered while calculating values of tax amounts at different jurisdiction level. This value of UTXJ in sales document is statistical in nature i.e. it is for information purpose only and will not be considered for final price calculation of any line item. 11.2. Condition Records for Tax Jurisdiction Level Condition TypesAfter maintaining Condition Records for UTXJ, we maintain Condition Records for Condition Types in different transaction for different levels of Jurisdiction Codes.For all the Tax Jurisdiction codes which are at first level (State level Tax Jurisdiction codes), condition records (Tax Rates) are maintained for Condition Type JR1. See Fig 16.For all the Tax Jurisdiction codes which are at second level (County level Tax Jurisdiction codes), condition records (Tax Rates) are maintained for Condition Type JR2 and so on. See Fig 17.

Fig 16

Fig 17 12. Assign Tax Jurisdiction Codes to Customer Master

In this important step, we assign Jurisdiction codes defined earlier in step no. 4 to the customer master.These codes are assigned in the General Data section- Address tab.

Fig 18

If user does not know the code, the he can use F4 help or click the drop down button. New pop up will be displayed as shown in Fig 19.

Fig 20 Here we can enter the County Code and City code. State will be copied from the address we maintain.Pressing enter will give selection list of applicable Tax Jurisdiction Codes as shown in Fig 21.

Fig 21 This way we can assign Tax Jurisdiction Code to customer.Note: Tax Jurisdiction Code for Ship To Party Customer will be considered for tax calculation in sales documents.This way we can configure the Sales Tax determination for US in SAP.

15