Sales Tax System Overview

This section reviews the Sale Tax or Tax Rate Determination System. It explains the data elements used by the system, and it provides an overview of how the tax rate determination system is used during customer and shipto entry and during sales order entry and invoice processing. 

The StreamV Tax Rate Determination system calculates the correct tax rate and  tax amount to be charged for each line item being ordered by or sold to a customer.  The system also calculates the tax to be applied to any shipping charges on the order or invoice being processed.  StreamV uses several different pieces of information to detemine of if a specific sale is subject to sales tax or VAT.  These components or data elements are listed below and are described in more detail in following sections.

Sales tax information is assigned to each customer and shipto address record when it is entered into the system. The shipto tax data is then automatically carried into the sales order and invoice line items that are created for each shipto address.  The information in each order or invoice line is used along with a taxable flag in each item, to calculate the amount of tax to be collected for each sales order or invoice being processed.  The line item tax information is also used to report on taxable and non-taxable sales.

      Nexus:  Nexus is basically the geographic locations (normally states) in which your company has a requirement to collect tax.  Determining where your company has a liability for sales tax purposes is a legal issue that is not addressed in this document.  You should get a clear understanding of where you have Nexus prior to loading the sales tax information in StreamV.  You may need to consult with your attorney or CPA to determine the specific sales tax requirements for your company.  Once you have identified the states in which you have Nexus, these states can be defined in a StreamV system control record.  This control record can be used to place a hold any Resale Sales Orders for shipments into nexus states until a valid resale certificate is received from the customer and associated with the order.   The Nexus control record is NOT used by the system when calculating sales taxes during order processing.  Sales Tax Processing is performed using the Taxtype, Taxcode, and Item Tax flags as explained in the next sections.

      Taxtype:  The Tax Type.  The Taxtype record indicates if the Sale is Taxable or not (Y or N) based on the type of sale being made.  All customer and shipto address records in the system are assigned a Taxtype for sales tax calculation and reporting purposes.  The Valid Taxtypes in the system are defined in Generic Code Tables, and the system requires a valid taxtype to be present in all customer, shipto, sales order line item and invoice line item records.  The Taxtype is used to determine if the customer, shipto, or order or invoice line item is taxable based on the type of purchase being made by the customer.  Valid Taxtypes include RETAIL (normally taxable) and RESALE  (items are being purchased for resale by your customer this is normally non-taxable). Other non-taxable Taxtypes such as EXPORT and GOVT can also be used to indicate sales being made out of the country, or to a government agency..

      Taxcode: The Taxcode is the Geographic Tax district being used for the sale.  The Taxcode file contains a record for each of the tax districts or authorities that you might ship goods to or need to collect tax for.  The tax authority can be a county, city or state, or a countrywide GST rate for some countries.)  Each Taxcode record identifies the taxing district, the total tax rate in effect for shipments into the district, and an indicator that is used to flag whether shipping charges are taxable in the district .   The combined or total tax rate in each taxcode record is what is used by the system when calculating the amount of sales tax to be collected.  Taxcodes are normally automatically assigned by the system using the zipcode table. At least one taxcode with a 0 rate is also maintained and used for zipcodes and shipments to zipcodes in which you do not have a tax requirement.

      Item Taxable Flag.  A Taxable flag is maintained in each Catalog and Inventory record.  If the Taxable flag is set to Y,  the system will apply tax to the item.  If the taxable flag is set to N, tax is not applied to the item.  The Taxable flag allows items such as a computer to be identified as taxable and other items such as a service to be identified as nontaxable (services are non-taxable in many states).  The Taxable flag is normally set at the Catalog Item level and the value in the Catalog Taxable field is automatically copied into any Inventory records that are created for each Catalog record.

      Item Tax Category The Item Tax Category field is used along with the Item tax flag to handle more complicated situations where a particular inventory item is taxable only in certain states or locations.  The item tax category can be used along with an exception table to handle situations where item taxability differs by state (ie a service is taxed in one state but not in another state).  The Item Tax Category field in the Catalog record is optional and is only filled in as required.

      Zipcode File The Zipcode file contains a record for each of the possible zipcodes in the U.S.  The zipcode records can be loaded with the the Taxcode and the  State, City, and County, that is associated with each zipcode.  Once the zipcode table is loaded, the system can use it to automatically load the Taxcode field in each customer or shipto address when the zipcode for the address is entered.  Loading the zipcode file allows you to automatically assign the correct Taxcodes to customer and shipto addresses in the US.  The zipcode table can also be updated using sales tax information provided by third parties (this is helpful when you have a tax requirement in a lot of different districts, states).

The above data elements are used together by the system when determining if a given transaction is taxable.  For example, if your company collects tax in Maryland only at 6% for the whole state, and  Maryland zip codes are pointed to an MD Taxcode, and all other zips (where the company does not collect tax) are pointed to the NO TAX taxcode.  The system would behave as follows

Shipto State

Taxtype

Taxcode

Item Tax Flag

Taxed?

Rate

MD

RETAIL

MD 6%

Y

Y

6%

FL

RETAIL

NO TAX 0%

Y

Y

0 (no nexus so tax rate is 0)

MD

RESALE

MD 6%

Y

N

 6% - but no tax based on Taxtype

FL

RESALE

NO TAX 0%

Y

N

0% based on Taxcode and no tax based on Taxtype

MD

RETAIL

MD 6%

N

N

6% - but no tax based on Item tax flag.

The following sections provide more detailed descriptions of each of the elements used by the Tax Rate Determination system.

More:

Nexus

Taxtype

Taxcode

Item Taxable Flag

Item Tax Category

Zipcode File