Methods of Calculating Sales and Use Tax 

Use

SAP offers three methods to calculate sales and use tax. You select the method according to your specific requirements. Once you choose your method, you customize the system accordingly.

Features

The three methods include:

·       Non-jurisdiction method

With this method, you allocate percentage rates to tax codes. This method is seldom used.

·       Jurisdiction method

With this method, you manually define the jurisdiction for every region in which you do business.

·       Jurisdiction method with external tax calculation system

With this method, you automate tax compliance activities by using an interface to an external tax calculation system.

The choice of methods is a parameter in configuring the country's global settings. Every company assigned to the country uses the same method. The parameter is called the calculation procedure.

Every method has the same final goal of applying appropriate tax percentages to line items in SD, MM, and FI. The non-jurisdiction method establishes rates separately in these areas using tax codes while jurisdiction methods use jurisdiction codes to determine the tax rates.

In the system, you use jurisdiction codes for calculating taxes if you have transactions with business partners whose locations have many jurisdictions or if you expect that it will be the case in the future.

You can also opt to calculate taxes without jurisdiction codes. This method only applies when your business partners are located in a few jurisdictions. You simply allocate percentage rates to the different tax codes.

The jurisdiction method with an external tax calculation system is used when a company operates in many tax jurisdictions. 

 

Once you choose your method, with or without jurisdiction codes, it is difficult to switch to another. SAP recommends that you use an external tax calculation system to avoid manual data entry that can be time-consuming.