A tax code defines the attributes associated with a tax rate. For example, a tax code can be defined with the name VAT. Associated with a tax code are the following attributes: Country, State/Province and City. City, State and Country are optional; if they are configured the system will attempt to match tax code based on the service address. Account tax categories are used to categorize account level taxes and can be defined at the owner level. A category is defined by a name. This account tax category is applied to a specific account. Multiple tax codes can be associated with an account tax category. Account tax categories can be useful when categorizing multiple tax codes under a single category and applying it at the account level.
Associated with a tax code are one or more tax rates. Once a tax code has been matched, the system will apply the one or more tax rates associated with that tax code. Tax rates are configured as percentage values. If multiple tax rates are configured onto a tax code, the system will apply each of those rates to the charge.
All configuration of the system and administrative operations can be initiated through the admin console. The left hand side of the console displays the Menu of operations that can be performed (Admin, Setup, Account Management etc.) while the right hand side displays contextual information around each operation.
As an example lets say a tax code “VAT” was defined with 2 tax rates: GST of 5% and PST of 8%. If this s tax code is applied to a $100 service, the total tax computed would be 100 * (0.05 + 0.08) = $13. The total amount charged would therefore be $113.
It is also possible to set a tax on tax option, where the second tax rate is applied on the cumulative amount. So in the example above, the tax on tax scenario would result in a total charge of $100 * 1.05 * 1.08 = $113.40.
All applicable taxes on charges will show up as line items on the account (accessed via the transactions tab). They will also be stored in the system and can be displayed on reports and invoices if required.
Taxes on services can also be categorized via Service Tax Categories. A Service tax category is defined by a name. Each tax code in the system can map to a single service tax category. If a service tax category is associated with a tax code, the system will ensure that the tax code will only be applied to the service, if that service has the corresponding service tax category connected to it. A single service tax category can be setup on a service. When configuring a service tax category, the system will allow the user to select the service tax category and the tax code. The system will filter tax codes to those applicable to the tax category.
Some businesses may wish to not charge the tax themselves but provide a breakdown of the applicable taxes to their customers; their customers in turn will remit the taxes owning to the government. EngageIP supports reverse taxation on usage classes. Tax codes can be set up on one or more usage classes with provisions for reverse taxation. Reverse VAT charges will show up on the transactions tab at billing. The transactions tab will display the invoiced charge for that UDR class along with the reverse tax amount as 2 separate line items. These line items can also be displayed on the customer invoice and in corresponding tax reports.