12/11/13 Document 764297.

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How to Setup Tax on Freight in R12 E-Business Tax (EBTax) Order to Cash (Doc ID 764297.1)
Modified: 21-Nov-2013 Type: HOWTO

In this Document

Goal
E-Business Tax (EBTax) Information Center > Note 764297.1
Solution
Setting up Freight
Conditionally Taxing Freight
References

APPLIES TO:

Oracle Order Management - Version 12 and later

Oracle E-Business Tax - Version 12 and later
Oracle Receivables - Version 12 and later
Information in this document applies to any platform.
***Checked for relevance on 01-Feb-2013***

GOAL

E-Business Tax (EBTax) Information Center > Note 764297.1

How to tax freight charges in R12?

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

Readers may also wish to review Note 1096942.1, How to Setup and Troubleshoot Freight in AutoInvoice and the Transactions Form

SOLUTION

In R12, there is not a way to tax freight lines unless they are setup as inventory items. The same functionality existed in 11i and had not changed.

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:

eBTax: Inventory Item for Freight (Oracle Order Management only)

The eBTax: Inventory Item for Freight profile option lets Order Management use an
Inventory item defined as Freight on Receivables transaction lines. You can use the
freight Inventory item to control the tax rate on taxable freight amounts.

The values for this profile option are:

Freight Charge - The freight Inventory item applies to external Receivables transactions.
Freight for Intercompany - The freight Inventory item applies to internal Receivables transactions only.

Note: if the list of values (LOV) does not show values for the above profile option, make sure you have also set the profile option OE: Item Validation Organization to your master org.

You must also set the eBTax: Invoice Freight as Revenue profile option to Yes.
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You must also set the eBTax: Invoice Freight as Revenue profile option to Yes.

eBTax: Invoice Freight as Revenue (Oracle Order Management only)

The eBTax: Invoice Freight as Revenue profile option controls whether to consider
freight amounts as taxable line items.

Set the eBTax: Invoice Freight as Revenue profile option to Yes, if you are required to
tax freight amounts. The freight amounts entered in the Order Management Ship

Confirm window are then passed to Receivables transactions as taxable line items.

If you set the eBTax: Invoice Freight as Revenue profile option to Yes, you must also set
the eBTax: Inventory Item for Freight profile option.

Tip: When creating a freight line for Ship Confirm, create a price modifier for freight costs.

3. Setup the following OM System Parameters:

Navigation: OM Super User > Setup > System Parameters > Values

Inventory Item for Freight: <Populate this parameter with the freight item created in step 1>

Invoice Freight as Revenue: <Select the option Yes for this paramter>

Save the changes.

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

This is a good option to consider if you have few taxing jurisdictions. If you have a large number of jurisdictions then product exceptions may prove to be labor intensive.

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.

Option 2: Setup a tax rule to disable taxes.

This is a good option to consider if you have many taxing jurisdictions. For example, if you wish to exclude all cities and county taxes as well as state level tax for the state of California from being char
then use this option.

This is done as follows:

A) Create a new Category Set (Ex: Tax Category)

Inventory Responsibility > Setup : Items : Categories : Category Sets

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

C) Define a Product Fiscal Classification in Tax Managers

Responsibility Tax Manager > Products > Product Classifications > Create

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In the above screenshot we first selected the Inventory Category Set defined in step A earlier. Next we created a new fiscal classification code type called "Freight". We then linked this value to the regi
should be calculated. These two steps result in all Inventory Items that have the Inventory Category Set of " Tax Category" to be associated with the Fiscal Classification Type Code of 'FREIGHT'.

D) Create a tax applicability rule to conditionally disable tax calculation (assumes that default for tax is applicable).
Tax Manager > Tax Configuration > Tax Rules

Note that in this example we are configuring the rule for " STATE" so that it does not tax Freight in California. For our regime we have three taxes: State, County & City. We would need to replicate t

each tax. This is clearly easier than the tax exception model where a tax exception would be required at the jurisdiction level.

With the default set to "Applicable", select the "Guided Rule Entry" option for the Tax Applicability rule.

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First set the Transaction conditions. In this case we check if the Ship To State is California

Next click on the Product Tab. Select the Fiscal Classification Type Code defined in step C from above, choose the result to match the Category value on your inventory item. In our case this is also "FRE

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Finally choose a result. In our case we choose "Not Applicable".

Complete the rule following the normal steps for tax rule creation. Be sure you enable the rule.

This rule will do the following:

1) For an Invoice or Order line it will find the inventory item.
2)
Next it finds the category sets (Tax Category) and value (Freight) on the inventory item
3) Next it finds the Product Fiscal Classification (Freight) linked to the Category Set (Tax Category)
4) Finally it Finds the Ship-To address from the transaction. If it is California then it will also check to see if the Product Fiscal Classification is Freight.
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4) Finally it Finds the Ship-To address from the transaction. If it is California then it will also check to see if the Product Fiscal Classification is Freight.
5) If step 4
evaluates to "True" then the result of "Not Applicable" will be rendered and taxes will not calculate.

Since only the inventory item " Freight" is linked to our tax category, only Freight will be excluded from tax calculation.

REFERENCES

NOTE:577996.1 - Case Study: Setup R12 E-Business Tax (EBTax) for Canada: Includes 2010 HST Changes
NOTE:1096942.1 - How To Setup Freight For AutoInvoice And The Transactions Workbench
NOTE:789455.1 - Troubleshooting Order Management R12 E-Business Tax (EBTax) Calculation Issues

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