Contributing Authorities

Contributing Authorities are a set of one or more authorities whose calculated tax is included in the taxable basis of a specified authority. For example, fees in Sweden are calculated on a taxable basis consisting of the Gross Amount + the Sweden VAT calculated on the original gross. In this case, Sweden Private Copy Levy is a Contributing Authority to Sweden VAT. Both INTL and US Tax Data include contributing authority relationships for the authorities it supports.

You can use the Contributing Authorities page to set up relationships between custom authorities you create and Tax Data Provider authorities provided by ONESOURCE Indirect Tax Determination. For example, California Sales and Use Tax is calculated on a taxable basis that may include both excise and recycling fees. The excise tax uses a taxable basis that includes recycling fees. If you set up a custom authority for each, you need to:

  • Add the Excise and Recycling custom authorities as contributing authorities to the CA - State Sales/Use Tax authority.
  • Add the Recycling custom authority as a contributing authority to the Excise authority.

Use the Contributing Authorities Configuration page to manage relationships between authorities. You must also update Rules or Cascading Rules for the authority to which the newly-assigned Contributing Authority contributes to include either the Tax on Contributing Authorities or Tax on Gross and Contributing Authorities calculation methods. For more information about custom authorities to handle transaction tax scenarios that are industry- or company-specific, see Custom Authorities

Please see examples in the following sections.

Evaluating Contributing Authorities Example

Once Determination interprets that a rule selected for a transaction specifies one of the contributing authority calculation methods, it determines which authorities are relevant to a transaction and builds a list of authorities to evaluate for contributing authority relationships.

In the following two examples:

  • CA State Sales/Use Tax identifies CA - Excise and CA - Recycling as contributing authorities.
  • CA Excise identifies CA - Recycling as a contributing authority.

Example 1:

  • Determination interprets that CA State Sales/Use Tax and CA - Recycling are relevant to a transaction and that the relevant rules use the Tax on Gross and Contributing Authorities calculation method.
  • Determination calculates the fee associated with CA - Recycling and includes it in the taxable basis for CA - State Sales/Use Tax.
  • Determination calculates the tax for CA - State Sales/Use Tax based on the modified taxable basis.
  • CA - Excise is not considered in this transaction, even though it is listed as a contributing authority to CA - State Sales/Use Tax.

Example 2:

  • Determination interprets that all three authorities are relevant to a transaction and that the relevant rules use the Tax Gross and Contributing Authorities calculation method.
  • Determination calculates the fee associated with CA - Recycling and includes it in the taxable basis for CA - Excise.
  • Determination calculates the tax associated with CA - Excise based on the modified taxable basis and includes it in the taxable basis for CA - State Sales/Use Tax.
  • Determination calculates the tax for CA - State Sales/Use Tax based on the modified taxable basis, which now includes both contributing authorities.

While unlikely, it is possible that your custom authority configuration will result in a circular reference. For example, Authority A has a contributing authority of Authority C, which has a contributing authority of Authority D. If Authority D also includes a contributing authority of Authority A, a circular reference occurs. In this case, the first tax calculated is used. The contribution of Authority A to Authority D is ignored, as Authority A has already been considered during the authority lookup. In this instance, Authority D will calculate first, Authority C second, and Authority A third.

Tax on Gross and Contributing Authorities Example

The following example builds on the examples above and uses the same contributing authority relationship.

  • A purchase of a certain product (Product A) valued at $100 results in a tax liability for each of the three authorities: CA - State Sales/Use Tax (a rate of 6.25%), CA - Excise (a rate of 2%), and CA - Recycling (a fee of $1).
  • Determination matches a rule for each authority. The rules for CA - State Sales/Use Tax and CA - Excise use the Tax on Gross and Contributing Authorities calculation methods, while the rule for CA - Recycling uses the Flat Fee calculation method.
  • A transaction is passed into the system including Product A, location data which maps to the three authorities, and dates which fall into the appropriate date ranges for the rule and the contributing authorities data.
  • Determination calculates the fee on Product A for CA - Recycling ($1) and adds it to the taxable basis passed to CA - Excise, resulting in a new taxable basis of $101.
  • Determination calculates the tax on the new taxable basis for CA - Excise (2%). The result is a tax of $2.02 and it is added to the taxable basis of $101 for a total of $103.02. This new taxable basis is passed to CA - State Sales/Use Tax.
  • Determination calculates the tax on the new taxable basis for CA - State Sales/Use Tax (6.25%). The result is a tax of $6.44 and it is added to the taxable basis of $103.02 for a final gross amount of $109.46.

Tax on Contributing Authorities Example

The following uses the same parameters as the previous example except that the rule for CA - Excise specifies a Tax on Contributing Authorities (Tax on Tax) calculation method.

  • A purchase of a certain product (Product A) valued at $100 results a tax liability for each of the three authorities: CA - State Sales/Use Tax (a rate of 6.25%), CA - Excise (a rate of 2%), and CA - Recycling (a fee of $1).
  • Determination matches a rule for each authority. The rule for CA - State Sales/Use Tax specifies the Tax on Gross and Contributing Authorities calculation method, CA - Excise specifies the Tax on Contributing Authorities calculation method, and the rule for CA - Recycling uses the Flat Fee calculation method.
  • A transaction is passed into the system including Product A, location data that maps to the three authorities, and dates that fall into the appropriate date ranges for the rule and the contributing authorities data.
  • Determination calculates the fee on Product A for CA - Recycling ($1) and passes it to CA - Excise; the taxable basis does not change.
  • Determination calculates the tax on the previous tax for CA - Excise (2%). The result is a tax of $.02 ($1 fee + 0.02c tax), and it is added to the taxable basis of $100 for a total of $101.02. The new taxable basis is passed to CA - State Sales/Use Tax.
  • Determination calculates the tax on the new taxable basis for CA - State Sales/Use Tax (6.25%). The result is a tax of $6.31, and it is added to the taxable basis of $101.02 for a final gross amount of $107.33.

Modifying the Basis Percentage

When you configure a contributing authority, you can also specify a basis percentage to apply to the results of the calculation for that authority before it is passed on to the selected authority for calculation.

For example:

  • Product A costs $100.00 and has a rule calling for 6.25% taxation by CA - State Sales/Use Tax and 2% by CA - Excise.
  • CA - Excise is a contributing authority for CA State Sales/Use Tax.
  • CA State Sales/Use Tax has a rule that specifies the Tax on Gross and Contributing Authorities calculation method.
  • CA - Excise calculates tax on 100% of the gross amount as specified by the matching rule that applies to a transaction. This results in a tax of $2.00.
  • CA - Excise's Contributing Authority specification for CA State Sales/Use Tax's states that the basis percentage is 50%.
  • Before CA State Sales/Use Tax calculates tax, the Gross Amount is modified by adding 50% of the tax resulting from the initial calculation by CA - Excise. Therefore, the Gross Amount is $101.00 ($100 + $2.00*.50).
  • CA State Sales/Use Tax calculates a tax of $6.31 for a total tax amount of $7.31.

Self-contributing Authorities Example

You can include the originating authority as a contributing authority for itself.

For example:

  • A telecommunications product on an intrastate transaction in New York, NY includes the following taxes:
    • 4% for NY - STATE SALES/USE TAX
    • 4.5% for NY - NEW YORK CITY, CITY SALES/USE TAX
    • 0.375% for NY - METROPOLITAN COMMUTER TRANSPORTATION DISTRICT (BRONX), DISTRICT SALES/USE TAX
    • 2.35% for NY - NEW YORK, UTILITY EXCISE TAX
    • 2.5% for NY - STATE EXCISE TAX (SECT 186-E)
    • 0.595% for NY - MTA SURCHARGE (186-C)
  • From the list of authorities above, the following three are set as contributing authorities for all six of the listed authorities:
    • 2.35% for NY - NEW YORK, UTILITY EXCISE TAX
    • 2.5% for NY - STATE EXCISE TAX (SECT 186-E)
    • 0.595% for NY - MTA SURCHARGE (186-C)
  • For each of the six authorities, an initial calculation occurs to determine the taxable basis, taking the three contributing authorities into account. For a $1000.00 gross amount, adding the contributing authorities results in a taxable basis of $1054.45:
    • 1000 * 2.35% = 23.50 (NY - NEW YORK, UTILITY EXCISE TAX)
    • 1000 * 2.5%= 25.00 (NY - STATE EXCISE TAX (SECT 186-E))
    • 1000 * 0.595% = 5.95 (NY - MTA SURCHARGE (186-C))
    • 1000 + 23.50 + 25.00 + 5.95 = 1054.45 (New taxable basis)
  • After the initial calculation occurs, the final taxes are calculated based on the new taxable basis:
    • 1054.45 * 4% = 42.18 (NY - STATE SALES/USE TAX)
    • 1054.45 * 4.5% = 47.45 (NY - NEW YORK CITY, CITY SALES/USE TAX)
    • 1054.45 * 0.375% = 3.95 (NY - METROPOLITAN COMMUTER TRANSPORTATION DISTRICT (BRONX), DISTRICT SALES/USE TAX)
    • 1054.45 * 2.35% = 24.78 (NY - NEW YORK, UTILITY EXCISE TAX)
    • 1054.45 * 2.5% = 26.36 (NY - STATE EXCISE TAX (SECT 186-E))
    • 1054.45 * 0.595% = 6.27 (NY - MTA SURCHARGE (186-C))
    • 42.18 + 47.45 + 3.95 + 24.78 + 26.36 + 6.27 = 150.99 (Total tax)

Understanding Date Ranges

Contributing Authorities are only evaluated if the transaction date falls in a date range during which the Contributing Authorities are active.

Date ranges can include a Start Date and no End Date (in which case they do not expire), or a Start and End Date pair. Date ranges are inclusive, so transactions occurring on either date are considered valid for the purpose of evaluating contributing authorities.

Product rules also include date ranges. It is possible for a transaction to select a rule that will bypass contributing authorities if there is a mismatch between rule dates and contributing authority dates.