Exception Tax Logic, Data Setup, and Impact
Exception tax can change how tax is calculated on an invoice, deviating from standard tax logic.
Standard Tax Calculation = Tax will be charged only if the item and the customer are BOTH taxable.
Exception Tax refers to situations where there are deviations from the standard tax calculation methods based on the item.
How Does Exception Tax Work?
Example: Customers in Iowa and Illinois both purchase the same product.
- In Both States: Restaurants do NOT get charged tax for Food Items or Cup Items
- In Iowa: Offices do NOT get charged tax for Food Items only.
- In Illinois: Offices get charged tax of ONLY 1% for Food Items
Step 1: Define the Tax Class of items
- Define what are "Food" and "Cup" items by assigning a Tax Class
- ServQuest >> Item Maintenance > Prism Tab
Item MUST BE MARKED TAXABLE for Exception Tax to work.
Step 2: Create Tax Codes that represent your tax scenarios
- Tax Codes assigned to customers are numeric only in example shown here
The tax codes created for exceptional tax only need to exist in the tax code listing
Never assign the "tax exception codes" to a customer
- Use Sales Tax Code Maintenance to create exception tax codes.
- Exception Tax Codes = [Regular Tax Code]+[Item Tax Class]
- Customers with Tax Code "220" - Illinois Offices will
- get charged 8.5% tax when sold a generic product.
- When a FOOD item is sold, "220FOOD" tax code is used, charging 1% tax on that item alone
- When a CUP item is sold, 8.5% tax rate is still used because "220CUP " does NOT EXIST (and should not as per the rules outlined above)
- Customers with Tax Code "225" - Illinois Restaurants will
- get charged 8.5% tax when sold a generic product.
- When a FOOD item is sold, "225FOOD" tax code is used, charging 0% tax on that item alone
- When a CUP item is sold, "225CUP" tax code is used, charging 0% tax on that item alone
- Customers with Tax Code "23" - Iowa Offices will
- get charged 7% tax when sold a generic product.
- When a FOOD item is sold, "23FOOD" tax code is used, charging 0% tax on that item alone
- When a CUP item is sold, 7% tax rate is still used because "23CUP " does NOT EXIST as per the rules outlined above
- Customers with Tax Code "258" - Iowa Restaurants will
- get charged 7% tax when sold a generic product.
- When a FOOD item is sold, "258FOOD" tax code is used, charging 0% tax on that item alone
- When a CUP item is sold, "258CUP" tax code is used, charging 0% tax on that item alone
In Short:
- Define Item Tax Class for items that need to deviate standard tax logic
- Real Tax codes are the Only tax codes assigned to customers and has the "general" tax rate for generic items
- Exception Tax Codes = [Real code]+[Tax Class] and only needs to exist in the list of codes with the rate % that should be used for exception (if the exception is not applicable for the state, do not create the code!)
Tax Code vs Tax Entity Setup
Refer to the ServQuest - Tax Code and Entity Creation article as needed.