Custom Authorities Associated with Bottom‑up/Terminate Zones

To calculate tax, Determination examines transaction zones (addresses) and looks for tax authorities attached to zones. Determination uses two methods to process zones in its search for tax authorities:

• Top-down
• Bottom-up

Determination usually processes zones from the top to the bottom, looking for matching zones starting from the highest level to the lowest. In this method, Determination examines all zones and their associated authorities. For example, with transactions based in the United States, it follows this pattern, starting at the state level and proceeds all the way to the city level:

1. State
2. County
3. District
4. City

However, there are certain zones that change this process by telling Determination to do the following:

• Reverse the typical top-down search order.
• Stop the zone/authority search at that particular zone.

These zones are marked on the Zones Details page of Determination as Bottom-Up for Direction Processing, and they have the Terminates Processing checkbox selected. When a transaction has one of these zones, Determination starts its search at the bottom of the zone tree and proceeds toward the top (bottom-up) until it finds a zone that is designated as a termination zone.

Using the same example from a United States transaction, when Determination uses the bottom-up method, it first looks at the city level, and it stops searching when it finds a zone marked as a termination zone. Unlike the top-down method, Determination may stop the search before reaching the state level if it finds a termination zone. For example, if the county is marked as a bottom-up/terminates processing zone, Determination does not proceed beyond the county:

1. City
2. District
3. County

In this bottom-up example, Determination stops its search at the county because all the relevant tax authorities are included at the level of that termination zone and the tax content has identified the specified zone to terminate. By terminating processing, Determination ensures that there is no double taxation.

Determination applies bottom-up/terminates processing differently depending on the type of tax content that is invoked for the transaction:

• Thomson Reuters content
• Custom content

The following sections explain how bottom-up/terminates processing works with each type of content.

Thomson Reuters Indirect Tax Content

For bottom-up/terminates processing transactions using Thomson Reuters content, Determination stops searching (terminates processing) for zones and authorities when a match is found. This is unlike top-down processing, where Determination examines all zones and their associated authorities.

An example with this type of processing is a transaction in the Canadian province of British Columbia. Determination begins its search for zones at the province level instead of at the country level because British Columbia is a bottom-up zone. Furthermore, Determination terminates its processing at British Columbia because the provincial tax (HST) already includes the federal tax.

Custom Tax Content

The default behavior for custom content is the same as the behavior for Thomson Reuters content: bottom-up/terminates processing stops at the first zone match. This means that custom authorities above the level of the termination zone could get overlooked in bottom-up/terminates processing transactions. For example, if you create a custom authority and associate it with the country zone level for Canada, it may not be included in bottom-up/terminates processing if the initial match is on the provincial level:

1. Province (British Columbia): Bottom-up processing starts here and does not continue to the country level (terminates processing).
2. Country (Canada): If there is a country-level custom authority, it is not included in the transaction under the default behavior.

To address this issue, you can use a combination of configurations that allows Determination to continue looking for custom tax authorities above the termination zone. This behavior is configurable only for custom content (custom authorities)—bottom-up processing for Thomson Reuters content still terminates at the initial zone match on the zone where termination is set and goes no further.

There are two required parts to this configuration and each one answers a question about zones with bottom-up/terminates processing:

1. Evaluation: Should Determination continue to evaluate (search for) zones and attached custom authorities above the termination zone?
2. Inclusion: If Determination finds any custom authorities above the termination zone, should it include them for consideration in the calculation?

The following sections describe how to configure both the evaluation and inclusions settings in Determination.

Evaluation Settings

To configure custom authority evaluation past the termination zone settings, choose from the following system configurations or company options:

Evaluation Setting	Parameter	Valid Value	Default Value
System Configurations	EVALUATE_US_CUSTOM_AUTHORITIES_PAST_ TERMINATE_PROCESSING_ZONES	Y, N	N
	EVALUATE_INTERNATIONAL_CUSTOM_AUTHORITIES_ PAST_TERMINATE_PROCESSING_ZONES	Y, N	N
Company Options	Evaluate US custom authorities past zone termination	Y, N	N
	Evaluate International custom authorities past zone termination	Y, N	N

These settings tell Determination whether it should look beyond the termination zone for additional zones that might have custom authorities. The default value is N, which means that Determination does not look above the termination zone for additional custom authorities.

These settings do not control whether Determination includes custom authorities if it finds any above the termination zone; rather, they direct Determination to continue searching above the termination zone.

Inclusion Settings

If you enable any of the evaluation settings identified above, you also need to tell Determination whether to include custom authorities for consideration in tax calculations. You can configure inclusion using a combination of the following:

• System configurations and company options
• Authority options

System Configurations and Company Options

Choose from the following system configurations or company options if you want Determination to include custom authorities in tax calculations. These parameters only work if either of the corresponding evaluation settings identified above are set to Y.

Inclusion Setting	Parameter	Valid Value	Default Value
System Configurations	INCLUDE_US_CUSTOM_AUTHORITIES_PAST_TERMINATE_PROCESSING_ZONES	Y, N	Y
	INCLUDE_INTERNATIONAL_CUSTOM_AUTHORITIES_PAST_TERMINATE_PROCESSING_ZONES	Y, N	Y
Company Options	Include US custom authorities past terminate processing zones	Y, N	Y
	Include International custom authorities past terminate processing zones	Y, N	Y

If you do not want Determination to include custom authorities above the termination zone by default, configure the inclusion settings to N. In this case, Determination relies on authority options to decide whether custom authorities should be evaluated for inclusion.

Authority Option

You can also set inclusion directly on custom authorities. You might do this for a variety of reasons, for example:

• You plan to use many custom authorities and only want to exclude a small number of them directly on the authority level.
• You want to exclude custom authorities that are not appropriate for bottom-up processing.

The Include past terminate processing zones custom authority option controls whether custom authorities above termination zones are evaluated for inclusion in transactions. Set this on the Option tab in Menu > Tax Data > Authorities > Advanced Configuration. You can set the company option to Yes, No, or Use Company Option or System Setting, and this option only works if either of the corresponding evaluation settings are set to Y.

Option Setting	Transaction Result
Yes	Determination includes custom authorities for evaluation above the termination zone.
No	Determination does not include custom authorities for evaluation above the termination zone.
Use Company Option or System Setting	This is the default, and it directs Determination to defer to the inclusion settings in the company option or the system configuration.

Order of Precedence

The system configurations, company options, and authority option work together and have the following order of precedence:

1. Custom Authority Option
2. Company Inclusion Option
3. System Inclusion Configuration

This order only applies if either of the following evaluation settings are Y:

• System Configurations
• EVALUATE_US_CUSTOM_AUTHORITIES_PAST_TERMINATE_PROCESSING_ZONES
• EVALUATE_INTERNATIONAL_CUSTOM_AUTHORITIES_PAST_TERMINATE_PROCESSING_ZONES
• Company Options
• Evaluate US custom authorities past zone termination
• Evaluate International custom authorities past zone termination

The tables below show examples of various setting combinations.