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How to Setup and Troubleshoot a Freight Rule in R12 E-Business Tax (EBtax) Payables to Exempt Tax [ID 1366325.1]
Modified: Dec 20, 2011

Type: HOWTO

Status: PUBLISHED

Priority: 3

In this Document
Goal
Solution
1. What is a Freight?
2. What is a Determining Factor?
3. Create a tax regime, tax and tax status (not shown)
4. Create a Fiscal Classification Type Code
5. Set default rules.
6. Create a Determine Tax Rate Rule
6. Additional Examples of Rules to Exempt Freight
7. Critical Patching Recommendation
8. Issues related to AP EBTax/Freight in Payables
References

Goal
E-Business Tax (EBTax) Information Center > Rules > How Tax Determining Factors Work in R12 E-Business Tax > Note 801535.1
This note seeks to explain how one can set up R12 eBusiness Tax to allow users to exempt a tax or charge a special rate on Freight lines at the Payables Invoice Workbench line level and use that for tax calculations.
This note explains one way of exempting taxes on Freight, if you have additional requirements or require another of exempting taxes, please contact using the link below and we will be happy to add those requirements into this document.

We are actively trying to build up participation in our EBTax community. We'd love your input, ideas, collaboration and solutions to be part of the experience. Check us out at on the E-Business Tax communities page.

Solution
1. What is a Freight?
Freight is often charged as a special charge when suppliers ships the items, this is also called shipping charges. There are various requirements in various states depending on the customer's business that a tax is to be charged on Freight lines but
there is also a requirement to charge a special rate for Freight lines or exempt a tax on Freight.
In this article, we will look into one of the many ways that a Freight can be exempted from Tax in Payables module.

2. What is a Determining Factor?

A tax determining factor is an attribute that may be used by the E-Business Tax (EBTax) engine to find and calculate taxes for a specific transaction. The EBTax rule engine allows implementers to create any number of custom tax rules that reference
the tax determining factors and that satisfy the unique needs of a specific business operating within a taxing jurisdiction.
For a complete listing of all available Determining Factors and examples of how they are used in tax rules, please see Note 1108463.1

3. Create a tax regime, tax and tax status (not shown)

4. Create a Fiscal Classification Type Code
Navigate using Tax Managers -> Products -> Product Classifications -> Select Oracle E-Business Tax from the drop down in Product Classification Source -> Click Go.
It displays the following window.

Then click on Update.

Now, click on create button to create a new Fiscal Classification Code

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After entering the details as shown in the above window, click apply and the Fiscal Classification code is saved.

5. Set default rules.

For this simple example we are assuming that this regime has one tax, one tax status and default rules for everything except for tax applicability.

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6. Create a Determine Tax Rate Rule

Once defaults are set, select the guided rule option for the determine Tax Applicability rule and name the rule code and name. Be sure to select "This rule applies to all transactions" and click next.

Then select the "Product" Tab, scroll down to Non-Inventory based Product Classification, enter or select the value 'Level 1' from LOV which corresponds to 'Fiscal Classification Code' defined in the step 4, select the value 'Equal To' in the Operator and
'Freight' in the Value LOV.

Enable the Rule and provide the Determining Factor Set and Condition Set names.
The Tax Rule once created will look like as shown below.

6. Additional Examples of Rules to Exempt Freight

1. You can combine a rule based on Ship To/From (Geography Rule) with the above setup if there is a requirement to exempt a tax for any particular State, City, County or Country.
2. If you require a special rate to be charged for Freight items, you can create a rule in Determine Tax Rule condition for the above condition.

7. Critical Patching Recommendation

Users are strongly encouraged to apply the latest tax rule engine patch referenced in Note 1301356.1to avoid known issues with rule evaluations in EBTax.

8. Issues related to AP EBTax/Freight in Payables

1. Note 971584.1 - Unable to Enter Manual Tax Line for an Invoice with Freight Line Allocated to Item - This is standard functionality
2. Note 550155.1 - R12 Cannot Calculate Tax On Freight Line After Invoice Is Validated - This issue will be fixed by applying the latest version of Invoice Workbench form - APXINWKB.fmb, please contact support to get the latest patch.

References
NOTE:729213.1 - How to setup EBTax to not calculate Tax on Freight Lines in Payables

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