Dependent Product Taxability
By default, you can configure each product in ONESOURCE Indirect Tax Determination to specify its individual taxability. The configuration is either explicit (through the configuration of a product exception and associated rules for each relevant tax authority) or implicit (using standard taxation for each authority).
In some cases, your business process may call for one product's taxability to relate to another product on the document or invoice. For example, you may want freight, when included as a unique line item, to inherit the same product taxability as the product being shipped.
Understanding Related Charges
To enable taxability inheritance, Determination includes the concept of related charges (also known as dependent products), which has two parts:
- A rule for the product (such as freight) whose taxability is a related charge. (The Related Charge checkbox is selected on the rule.)
- A line in the XML invoice that ties the related product (freight) to the line number for the product it is related to (RELATED_LINE_NUMBER).
To further understand related charges:
- A related charge is identified in the Input XML at the line level through the use of the <RELATED_LINE_NUMBER> element. This element specifies the line that contains the product whose taxability will be used. A dependent line must always appear in the Input XML after the line it depends on, though it does not need to be the next line. The element is not rate- or rule-specific.
- When the transaction is processed, Determination selects the authorities to process based on the included address data. If a related charge is included, the resulting authorities must be the same for both the parent product and related charge(s). For example, the Ship From address must be the same for both lines.
- Once a rule is selected by Determination, it must contain a selected Related Charge checkbox. Apply Related Charges to custom rates or rules, not standard rules or a tax data provider.
- If the Related Charge checkbox is checked, the engine calculates both products using the parent product taxability, including (if applicable) using the parent product's Rules membership for the purpose of selecting a Authority Rate Sets rate.
- If the Related Charge checkbox is not checked, each product is evaluated separately using the product taxability attributes associated with each.
Only the calculation method and the rate or fee are inherited by the related charge from the parent product's rule. The Invoice Description, Tax Code, and Rule Output used in the related charge transaction are from the related charge's rule.
A line containing a related charge must contain the exact address information as the line containing the parent product, or the parent product's rule data will not be inherited. In this case, a Severity 2 error results and the transaction halts in the ERP. The transaction will not be processed.
Related Charges Example
For example, the product Widgets has a related charge for Freight. If the Freight is to be taxed at the Widget rate, you need:
- A rule for Widgets
- A rule for Freight with the Related Charge checkbox selected
In this example, an invoice contains two line items that include the following pseudo-XML. The RELATED_LINE_NUMBER element is taxed according to how LINE_NUMBER 1 is taxed.
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<LINE NUMBER>1
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<PRODUCT>Widgets
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<LINE NUMBER>2
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<PRODUCT>Freight
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<RELATED_LINE_NUMBER>1
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- The Ship From and Ship To are both in Washington State.
- The Rate or Fee used by the parent rule applies to both lines of the invoice.
Consider the following:
- Related charges can be tested on the Workbench.
- An invoice can contain more than one related charge.
- Related charges can be included in allocations.
- Messages are returned in the output XML when dependent processing is used. In addition, the <RELATED_LINE_NUMBER> element is also returned in the <TAX> structure.
- Rules can have both a related charge and one of the following, Rate, Rate Set, Exempt, or No Tax. This handles the case, for example, where Freight can be a related charge, but in another case, is not a related change and has its own rate.