Setting Up Sales and Use Taxes and Value-Added Taxes (VAT)

This chapter discusses how to:

Establish PeopleSoft-only sales and use tax processing.
Establish Taxware and Vertex sales and use tax processing.
Establish the Payables VAT default hierarchy.

Establishing PeopleSoft-Only Sales and Use Tax Processing

This section provides an overview of PeopleSoft-only sales and use tax processing, and discusses how to set up processing options.

Understanding PeopleSoft-Only Sales and Use Tax Processing

This section discusses:

Default logic for tax applicability and codes.
Sales and use tax calculations.
Calculation examples.

Tax applicability and tax codes are derived by ship to location, item, ultimate use code, and vendor. The value of the Tax Destination field is used to look up default values. The default values for tax applicability and tax codes are defined with ship to locations on the Ship To Locations page.

Default Logic for Tax Applicability and Codes

The following table describes the logic that the system uses to populate the tax applicability and tax codes onto the voucher line. You can override these default values at any time, and the system recalculates the values based on your new choices rather than the original defaults.

This defaulting logic is the only mechanism for defaulting tax applicability and tax codes.

When the system finds a match, it uses the matching row and exits the routine. If no match is found, the routine continues to the next step.

Condition	Logic
If voucher line has an item, ultimate use code, and category:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on vendor only.
If voucher line has an item and ultimate use code:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on vendor only.
If voucher line has a category and ultimate use code:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on vendor only.
If voucher line has an item and category:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on the vendor only.
If voucher line has an item:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on vendor only.
If voucher line has a category:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on vendor only.
If voucher line has an ultimate use code:	Looks for match in default table with the vendor ID and vendor location on the voucher header. Looks for match on vendor only.
Action:	Match on vendor ID and vendor location on voucher header. Match on vendor ID on voucher header.
If voucher line has an item, ultimate use code, and category:	Looks for match in default table with no vendor and vendor location.
If voucher line has an item and ultimate use code:	Looks for match in default table with no vendor and vendor location.
If voucher line has a category and ultimate use code:	Looks for match in default table with no vendor and vendor location.
If voucher line has an item and category:	Looks for match in default table with no vendor and vendor location.
If voucher line has an item:	Looks for match in default table with no vendor and vendor location.
If voucher line has a category:	Looks for match in default table with no vendor and vendor location.
If voucher line has an ultimate use code:	Looks for match in default table with no vendor and vendor location.
Action:	Match on all default rules for the ship to location. Set voucher line to exempt if no default row found.

Sales and Use Tax Calculations

The system calculates sales and use tax by applying the tax rate for the tax code on each voucher line against the taxable basis amount. After the system calculates all of the voucher lines, it compares the calculated sales tax amount against the amount of sales tax input on the Voucher Invoice Information page. When there is a difference between calculated sales tax and input sales tax, the system prorates the sales tax amount on the voucher across voucher lines that are sales tax applicable.

When the calculated sales tax amount is zero, the system prorates sales tax on the voucher by the percentage of each voucher line’s basis amount, divided by the total sales tax basis amount of all voucher lines that have been designated as sales tax applicable. If a sales tax amount is calculated using the applicable tax rate, the sales tax input on the voucher is prorated by the percentage of the calculated sales tax for that line, divided by the total calculated sales tax amount for the voucher.

The system accrues the difference between calculated sales tax and the voucher sales tax amount as use tax if the Sales and Use Tax Edit Message field on the Payables Definition - Tax Options page is set to Warning and the sales tax tolerance levels are exceeded. The system processes accrued use tax entries in the same way as calculated use tax charges. No amount is accrued if the sales tax tolerance levels are not exceeded.

Calculation Examples

This section discusses:

Example 1
Example 2

The following examples are based upon certain assumptions.

Tax codes and rate includes:

Tax Code	Tax Rate
Sales1	2%
Sales2	4%
Sales3	6%
Sales4	8%
Use1	1%

Ship to A:

Appl	Sales Tax Code	Use Tax Code	Ultimate Use Code	Category	Item	Vendor	Location
Taxable	Sales1	Use1
Direct Pay	Sales2	Sales2	MFG
Exempt			RSCH		ItemA
Taxable	Sales3	Sales3				VendorA	Main
Exempt			RSL
Taxable	Sales4	Sales4			ItemA	VendorA	Main

Ship to B:

Appl	Sales Tax Code	Use Tax Code	Ultimate Use Code	Category	Item	Vendor	Location
Exonerated

Example 1

This example is based upon the following assumptions:

Accrue difference is not applicable.
Tolerance checking is not performed.

Vchr ID	Total	Entered Tax	Vendor	Loc	Ship To	Item	Use Code	Tax Code	Calc Sales Tax	Calc Use Tax
A	1000	10	VendorB	Main	A			Sales1	20.00	0.00
B	1000		VendorB	Main	A		MFG	Sales2	0.00	40.00*
C	1000		VendorB		A	ItemA	RSCH		0.00	0.00
D	1000	10	VendorA	Main	A			Sales3	60.00	0.00
E	1000		VendorB		A		RSL		0.00	0.00
F	1000	10	VendorA		A	ItemA		Sales4	80.00	0.00
G	1000		VendorB		B				0.00	0.00**

* The direct pay certificate is copied onto the voucher. The sales tax rate is used and the use tax is calculated.

** The exoneration certificate is copied onto the voucher. No tax is calculated.

Note. It is your organization's responsibility to provide the appropriate certificates when claiming an exemption. The system only displays a warning message if this field is left blank in the shipping information groupbox.

Example 2

This example is based upon the following assumptions:

Accrue difference is selected.
Tolerance checking is not performed or set to warning.

If tolerance checking is not performed, the system accrues use tax charges whenever the sales tax calculated on the voucher is greater than the sales tax amount input by the user. If tolerance checking is set to warning and the sales tax tolerance levels are exceeded, the system accrues the difference as use tax charges.

Vchr ID	Total	Ent Tax	Vendor	Loc	Ship To	Item	Use Code	Tax Code	Calc Sales Tax	Calc Use Tax
A	1000	10	VendorB	Main	A			Sales1	20.00	10.00
B	1000		VendorB	Main	A		MFG	Sales2	0.00	40.00*
C	1000		VendorB		A	ItemA	RSCH		0.00	0.00
D	1000	10	VendorA	Main	A			Sales3	60.00	50.00
E	1000		VendorB		A		RSL		0.00	0.00
F	1000	10	VendorA		A	ItemA		Sales4	80.00	70.00
G	1000		VendorB		B				0.00	0.00**

* The direct pay certificate is copied onto the voucher. The sales tax rate is used and the use tax is calculated.

** The exoneration certificate is copied onto the voucher. No tax is calculated.

Note. You must accept the calculated tax amount if tolerance checking is set to error.

Setting Up PeopleSoft-Only Sales and Use Tax Processing Options

In Payables, sales and use tax data elements are defaulted from the control tables to minimize repetitive data entry. After the setup, you only enter exceptions to the default rules that you have defined. Sales and use tax default rules follow the Payables control hierarchy. Values at the business unit level default to the transaction level unless you override the defaults with values stored at an intermediate level, such as voucher origin, control group, or vendor. Sales and use tax defaults and calculations depend on how you set up the following data elements in the table below:

Task	PeopleSoft Page	Comments	Hierarchy Level
1. Define tax authority codes.	Tax Authorities page	See Defining Sales and Use Tax Authorities and Codes.
2. Define sales and use tax codes.	Tax Codes page	See Defining Sales and Use Tax Authorities and Codes.
3. Define Ultimate Use codes (optional).	Ultimate Use Codes page	See Defining Ultimate Use Codes.
4. Define sales and use tax defaults for ship to locations.	Ship To Locations page Click the Sales/Use Tax link to access the Sales and Use Tax Defaults page.	See Specifying Ship To Location Sales and Use Tax Defaults and Exceptions.
5. Define sales and use tax options for the business unit.	Payables Definition - Tax Options page	See Establishing Tax Options.	Business unit
6. Specify sales tax tolerances for the business unit.	Payables Options - Tax Options page	See Selecting Tax Options.	Business unit
7. Specify sales and use tax parameters for voucher origins.	Voucher Origin − Tax Options page	See Setting Tax Options.	Voucher origin
8. Specify sales and use tax parameters for control groups.	Group Information − Tax Options page	See Setting Tax Options.	Control group
9. Define sales and use tax defaults for vendors.	Vendor Information - Location page Click the Procurement link to define Ordering and Ship From location addresses. Click the Sales/Use Tax link to define sales and use tax options.	See Defining Sales and Use Tax Options.	Vendor
10. Specify sales and use tax options for vouchers.	Invoice Information page Click the Sales/Use Tax link to access the Invoice Line Tax Information page.	See Entering Invoice Information for Online Vouchers.	Voucher

Establishing Taxware and Vertex Sales and Use Tax Processing

This section discusses Taxware and Vertex sales and use tax setup.

Setting Up Taxware and Vertex Processing Options

Taxware and Vertex are third-party applications that calculate sales and use tax with procurement data from . Payables integration makes it possible for these applications to use the same hierarchical default structure that is applied to PeopleSoft processing. To successfully implement a third-party application with the Payables system, you must complete setup tasks in addition to the setup tasks for PeopleSoft only sales and use tax processing. These tasks are also in addition to installing Taxware or Vertex:

Task	PeopleSoft Page	Comments	Hierarchy Level
1. Enable Taxware or Vertex for your PeopleSoft system.	Installation Options - Overall page Tax Provider Installation page	See Setting Overall Installation Options. See Defining Tax Provider Installation Options.
2. Assign geocodes to location codes.	Location Definition page Click the Lookup link to select a geocode on the Tax GeoCode Selection page.	You must select a geocode for each location definition. Geocodes are only required for locations that will interface with Taxware and Vertex. See Setting Up Locations.
3. Define Ultimate Use codes (optional).	Ultimate Use Codes page	See Defining Ultimate Use Codes.
4. Define sales and use tax defaults for ship to locations.	Ship To Locations page Click the Sales/Use Tax link to access the Sales and Use Tax Defaults page. Calculation parameters are only applicable to Taxware and Vertex.	See Specifying Ship To Location Sales and Use Tax Defaults and Exceptions.
5. Define Taxware and Vertex options for the business unit.	Payables Definition - Tax Options page Select the Tax Vendor option to display additional fields for specifying Taxware or Vertex defaults.	See Establishing Tax Options.	Business unit
6. Specify sales tax tolerances for the business unit.	Payables Options - Tax Options page	See Selecting Tax Options.	Business unit
7. Specify sales and use tax parameters for voucher origins.	Voucher Origin − Tax Options page	See Setting Tax Options.	Voucher origin
8. Specify sales and use tax parameters for control groups.	Group Information − Tax Options page	See Setting Tax Options.	Control group
9. Define sales and use tax defaults for vendors.	Vendor Information - Address page Click the Lookup link to select a geocode on the Tax GeoCode Selection page. Geocodes are only required for addresses that will interface with Taxware and Vertex. Vendor Information - Location page Click the Procurement link to define Ordering and Ship From location addresses. Click the Sales/Use Tax link to define sales and use tax options.	See Defining Sales and Use Tax Options.	Vendor
10. Specify sales and use tax parameters for a voucher line.	Invoice Information page Click the Sales/Use Tax link to access the Invoice Line Tax Information page. Additional fields appear depending on if you have installed and enabled Taxware or Vertex. GeoCodes and Addresses page Click the Override Tax Location link on the Invoice Line Tax Information page. Fields vary depending on if you use Taxware or Vertex.	See Entering Invoice Information for Online Vouchers.	Voucher
11. Run the GeoCode Update Application Engine process (PO_UPDGEO) to populate the geocodes for locations and addresses.	Geo Code Update page	See Updating Geocodes for Locations and Addresses.

Establishing the Payables VAT Default Hierarchy

This section discusses setting up the Payables VAT default hierarchy.

Setting Up the Payables VAT Default Hierarchy

Setting up VAT for Payables involves first establishing the general VAT environment, then establishing the Payables VAT default hierarchy.

To set up a VAT environment for Payables, you need to access pages in the Set Up Financials/Supply Chain, Common Definitions, VAT and Intrastat menu. These pages, the VAT components, and VAT setup are described in detail in the PeopleSoft Enterprise Global Options and Reports PeopleBook. It is essential that you read the information in this PeopleBook prior to setting up your VAT environment.

After you set up your VAT environment, you set up VAT defaults and options throughout the Payables control hierarchy to determine how to process Payables VAT transactions. At the top of the control hierarchy are the VAT entity and VAT country. From there, you set the processing options according to the following hierarchy:

General Ledger business unit.
Payables business unit.
Voucher origin.
Control group.
Vendor.
Vendor location.
Inventory item.
Voucher.
Voucher line.

At each of these levels, you might be required to specify values for certain VAT options and you will also have access to the VAT Defaults and Services VAT Treatment Setup pages. Use these pages to specify values for both required and optional VAT defaults for that level. Note that the fields available on the VAT Defaults and Services VAT Treatment Setup pages vary by the level in the hierarchy from which you access them. The VAT Defaults and Services VAT Treatment Setup pages are documented in full in the PeopleSoft Enterprise Global Options and Reports PeopleBook.

The following tables lists the pages on which you establish VAT options and from which you access the VAT Defaults Setup and Services VAT Treatment Drivers Setup components.

Payables Hierarchy	VAT Options Pages or Defaults Links	Usage
General Ledger business unit	Procurement Control - Non-Merch Charges See Setting Up Nonmerchandise Charges.	On the Procurement Control - Non Merch Charges page, you establish the non-recoverable VAT prorate policy by General Ledger business unit. The prorate policy that you establish here defaults to all Payables business units that are mapped to this general ledger business unit.
Payables business unit	Payables Options - Tax Options See Selecting Tax Options. See Establishing VAT Defaults. Payables Definition - Tax Options See Establishing Tax Options. See Establishing VAT Defaults.	You set up VAT options for Payables business units by setID on the Payables Options – Tax Options page and by business unit on the Payables Definition - Tax Options page. You also use the VAT Defaults and Services VAT Treatment Setup components, either by accessing them from the Payables Options – Tax Options page and Payables Definition - Tax Options page or by accessing them directly from the menu, selecting the AP Options and AP Business Unit drivers. On the Payables Definition - Tax Options page, you complete the Payables business unit VAT definition by selecting the type of VAT edit message that is to appear when the tolerances set on the Payables Options - Tax Options page are exceeded.
Voucher origin	Voucher Origin - Tax Options See Setting Tax Options.	You can establish default VAT physical nature and service location performance defaults on this page for the Payables control hierarchy. These defaults can be overridden at the voucher origin level.
Control group	Group Information – Tax Options See Setting Tax Options.	You can establish default VAT physical nature and service location performance defaults on this page for the Payables control hierarchy. These defaults can be overridden at the control group level.
Vendors and Vendor Locations	Enter VAT for vendors on the following pages: Vendor Information – Identifying Information VAT Registration Details VAT Default Setup Service VAT Treatment Drivers Setup See Entering Vendor Identifying Information. Vendor Information – Location See Entering High-Level Information for Vendor Locations.	You can set up VAT options at the vendor and vendor location levels of the Payables control hierarchy. Most of these options can in turn be overridden on the voucher.
Inventory Item	Inventory Definition - Business Unit Definition See Defining Basic Business Unit Attributes.	You can establish default VAT options for inventory items.
Vouchers and Voucher Lines	Enter VAT for vouchers and voucher lines on the following pages accessed from the Voucher – Invoice Information page: VAT Header VAT Summary Voucher Distribution Line VAT Information See Creating Vouchers Online.	You can set up VAT options at the voucher and voucher line levels of the Payables control hierarchy. Most of these options can in turn be overridden on the voucher.

Note. Vouchers that are created through the Voucher Build process apply the VAT defaults populated by the Payables control hierarchy, unless VAT information is specified on the staged source transaction. For quick invoices, you can specify VAT apportionment control on the delivered Quick Invoice complete worksheet page.