SAP allows the consideration of following taxes:

Tax on sales and purchases

US sales tax

Additional taxes

Withholding tax

SAP covers two types of taxation

Taxes levied at national level(with uniformly defined rates)

Taxes levied at state level(rates defined at state/jurisdiction level), SAP also provides
generic tax interface software to support complications of tax at this level.

The system provides assistance with and (treats Tax) as following:

Calculating tax amount (checks the tax amount entered or automatically calculates the
tax)
Posting to specified G/L accounts. (post tax amounts to tax accounts)

Performing tax adjustments (for cash discounts or other deductions)

Tax reporting (creates tax return)

The system determines taxes from:

A base amount which has a cash discount included or excluded. (The expense or revenue
amount is the base amount, which can include a cash discount (tax base is gross) or
exclude a cash discount (tax base net)),(GrossInclNetExcl)
A tax code to validate or calculate the tax amount.

National regulations determine if tax base amount should be Net amount or Gross amount.
Tax on sales and purchases is the balance of two:

Output tax: levied on net value of goods sold and is billed to customer; Its a liability of
coy to tax authorities.
Input Tax: levied on net invoice amount billed by vendor; Its a receivable which coy
claims from tax authority.

Tax authorities can define part of input tax as non deductible, which can then be posted to a
separate expense account or distributed to G/L accounts and asset line items.
In USA both sales and use tax only applies to goods consumed by consumers, if a taxable good is
sold either sales or use tax is levied, therefore goods are only taxed once. In US the customer
only has to pay use tax if he is not charged sales tax by vendor (e.g customer has a self
assessment permit or vendor doesnt have a branch in state)

In USA sales tax is collected by a vendor and remitted to the jurisdiction of customer as goods
used in production or for resale to third party remain untaxed in USA.
If a customer is exempt from tax you can specify this in the system by entering the appropriate
indicator in customer master records.
A tax calculation procedure is assigned to every country for carrying out tax calculations. R/3
delivered with preconfigured tax calc procedures for most countries.
The tax calculation procedure contains following:

Order of the steps:

Tax or condition type (applicable to a country,R/3 delivered with condition types
necessary for each type of tax calculation)

Account/transaction key (used for auto account determination for taxes concerned,
system has predefined account keys)

Condition types are tax calculations that are valid for the country and the base amount is an
expense or revenue item.
jurisdiction code is a combination of codes of autonomous tax authorities, national-state-countycity-district, tax jurisdiction code must be defined at all these levels. When you post taxes with a
jurisdiction code you can enter the taxes per jurisdiction code or per tax level. Tax jurisdiction
code must be defined at client level.
Tax codes are linked with either of the following:

Country key
Combination of country key and tax jurisdiction code

Tax code is used to

Verify amount of tax

Calculation amount of tax

Calculation additional tax portion

Verify tax type

Determine G/L account

Show tax correctly on tax forms

In configuration you can choose whether the document date or th e posting date is valid for tax
calculation. In addition to other information the tax code contain tax rates. Tax rates are assigned
to tax types used in tax calcculation procedure.

A tax code may have several tax rates entered for different tax types. Some postings to tax
relevant G/L accounts must have a tax rate of zero, this applies to:

Items that are tax exempt but have to be reported-for these items a special tax code is
created with a tax rate of zero
Items that are created by tax exempt transactions such as goods issue, good movement
etc. A special tax code must be assigned to these transactions in configuration