How to Setup Tax on Freight in R12 E-Business Tax (EBTax) Order to Cash

How to Setup Tax on Freight in R12 E-Business Tax (EBTax) Order to Cash

Problem Scenario :

How to tax freight in R12?
How to tax freight only in certain states?

Solution

In R12, there is not a way to tax freight lines unless they are setup as inventory items.

Setting up Freight

In order to tax freight, the following steps must be performed
1. Create Freight as an Inventory Item.

2. Setup the following profiles as described under Order Management Responsibility:

eBTax: Inventory Item for Freight as ‘Yes’.

eBTax: Invoice Freight as Revenue as ‘Yes’.

Conditionally Taxing Freight

In the United States, not all jurisdictions charge taxes on Freight. If you do not want to tax freight for all states then there are two options:
Option 1: Setup Product Rate Exceptions for those jurisdictions that you do not want to tax freight on.
Option 2: Setup a tax rule to disable taxes.

Setup Product Rate Exceptions for those jurisdictions that you do not want to tax freight on.
Products> Tax Exceptions
1. Navigate to the Create Tax Exception page.
2. Enter the tax regime, configuration owner, and tax to which this tax exception
belongs.
3. If applicable, enter the tax status, tax rate, and tax jurisdiction for this tax exception.
4. Select the exception type to use:
If this is an Item exception, enter the inventory organization and inventory item.

1. Click on create

2. Enter the Mandatory fields in the Tax exception Creation Form. Click on apply.

3. A Confirmation message stating the Tax Exception has been created appears.

Setup a tax rule to disable taxes.

This is done as follows:
Create a new Category Set (Ex: Tax Category)
Inventory Responsibility > Setup : Items : Categories : Category Sets

Query the Freight Inventory Item and associate it to an item category (Ex: Tax Category)
Inventory Responsibility > Inventory > Items > Master Items

Define a Product Fiscal Classification in Tax Managers
Responsibility Tax Manager > Products > Product Classifications > Create
Click on ‘Create’ to create a new product classification

Create Product Classification Page: Fill the Mandatory Details. Click on Apply

A confirmation message of Product classification being created appears.

Create a tax applicability rule to conditionally disable tax calculation (assumes that default for tax is applicable).
Tax Manager > Tax Configuration > Tax Rules
With the default set to "Applicable", select the "Guided Rule Entry" option for the Tax Applicability rule.

Guided rule Entry to define the Tax Rules

Enter the general information

Enter the Tax Rule Conditions:

Click on Product: Enter the Product Classification. Click on Next.

Enter the applicable Tax :’Not Applicable’

Click on Next and the Rule gets applied. The Disable Tax Rule gets applied