Implementing E-Business Tax (Considerations)

What many do not realize is that when you implement E-Business Tax, address validation for customers and supplier/vendors is enforced. And, the address validation is not controlled by Tax, but by the Trading Community Manager. This is necessary when you consider that in the U.S. there are approximately 500,000 taxing locations, including states, county, cities, and school districts just to name a few, and each of these are further delineated by postal/zip codes.

Through the Trading Community Manager, all of the tax structure is set up and all of the tax locations are set up. When using a third-party product like Taxware or Vertex, these locations are called “geocodes,” which is an alphanumeric code that represents the combination of state, county, city, and postal/school district codes. (Please note that geocodes will be used in the rest of the article and when used they just represent the combination of state, city, county, postal code and in Oracle the term tends to be used whenever you are talking about the location with the Trading Community Manger.) Address validation is required because it is impossible for the tax to calculate if it cannot find the correct address location or geocode.

The address validation has caused many issues with both customers and suppliers. And, if a customer or supplier with an invalid addresses does get in, they will error out when trying to be used and have to be manually corrected. All these issue increase time and expense on projects. One of the biggest issues is that I rarely see the county on the address in Legacy Systems including 11i upgrades. In the U.S. many of the thousands of counties have taxes.

The solution to having a successful implementation is to make sure that addresses are corrected in the legacy system so that the conversions can be successful.

Another issue with Tax is that you need to tax at all levels. There are approximately 500,000 geocode combinations, 500,000 tax codes and 500,000 tax rates. When you think about this, it’s impossible to do and maintain manually. I would recommend getting Taxware, Vertex or some other third-party vendor. These vendors provide all the geocodes, tax codes and tax rates. They also come with monthly updates for all three, as needed. For instance, if you only need state tax you could probably perform this manually as you would only need about 53 (includes territories and states) tax codes and rates. But, you would still need a geocode file, as address validation would still be on (although you have the option of changing the validations).

If you have foreign operations, it’s actually easier to set up for Vat tax because, for example, in China it used to be at the country level but moved down to the province level – that’s far fewer geocodes and only one tax rate of 17% (last time I checked). The U.K. also has very few rates, with input/output netting, limited rates and geocodes.

If you have an issue with validation you may follow below instructions on how to verify and or set up geocodes:

Make sure you have to have the Trading Community Manager responsibility.

Then you need to navigate to Geography Hierarchy. The screen below opens and enter “US” and clicking “GO” will bring up the second screen.

At this point you need to click on “View Details” and the states open up as below:

This first screen shows states. If you want to see just Florida then enter “FL” and click “GO” and the screen below shows up.

Again, to move down a screen click on “View Details” and you will see counties.

There are three counties entered for Florida. In actuality, Florida has over 400 counties. And this is because seeded value in Geocodes only include a very few for instance Brevard will give you Miami, Orange will give you Orlando. This shows that there is a need to load geocodes because seeded values usually only cover a few counties and major cities. If you see the county you are interested in, then click on it to view details for the city. If you do not see your county click on “Add 5 Rows” as shown below, then enter the value you need: I entered Osceola and then clicked “Apply”.

Now we have four counties, but we still need to view details and add a city.

Since we entered the county there will be no cities. So, click “Add  Rows” to enter the city–Orlando– then, click “Apply” and you have the screen below:

I have entered Kissimmee and hit apply now the city, state and county are setup. You can enter as many cities as you need per county. If you wanted to add more cities just click on “Add 5 Rows” again.

If postal code was needed just view details then “Add 5 Rows” and enter 34747. Click “Apply” and you will now have the postal code.

I hope by showing the steps for setting up one geocode shows why I recommend that geocodes be loaded instead of entered, so the implementations will go more smoothly.

In summary, implementing Tax causes address validation, which means addresses should be fixed in the legacy system. And as there are approximately 500,000 geocodes, tax rates and tax codes, there needs to be some mechanism for loading these items. Vertex and Taxware provide all the geocodes, tax rates and codes. There also are vendors that will supply just the geocodes. So decisions will have to be made in what direction must be taken when implementing E-Business Tax.