Tax Calculation Process in SD 
Tax Calculation Process in SD
Purpose
The purpose of the tax calculation process in SD is to apply appropriate tax rates and amounts to line items during creation of invoices and sales orders. These rates and amounts are generated by the external tax calculation system.
Process Flow
SD requires that sales orders and invoices reflect the tax applicability of each item and compute the total tax due on each line item within the sales document. Appropriate tax amounts and tax rates are determined for both orders and invoices.
Several parameters influence the tax amounts and tax rates determination. The most important ones include:
SAP defaults the ship-from jurisdiction maintained on the plant as the point-of-order acceptance, and defaults the ship-to jurisdiction maintained on the customer as the point-of-order origin. Order acceptance jurisdiction and order origin jurisdiction can be changed using the provided tax interface system user exit.
Jurisdiction codes are automatically retrieved from the external tax package during creation or change of a customer master record or a plant. This occurs after the address information has been entered on the master data.
SD uses the country, customer tax indicator, and material tax indicator to read the tax condition records. During pricing execution in sales order processing, the system exits the normal pricing upon recognizing a condition type 1 (delivered UTXJ). The tax condition records are then read using the country and tax code maintained in the pricing condition record.
The tax procedure TAXUSX and the SD pricing procedure RVAXUS contain condition formulas (300 - 306 or 500, 510, 301 - 306 for document Max Tax calculation) which invoke the tax interface system. Once the tax interface system is invoked, a communication structure with header and items data is filled with the necessary information needed by our partners' tax package to calculate taxes. This communication structure is then passed to our partner’s API via an RFC (Remote Function Call).
The partner’s API passes this data to its tax calculation package. The appropriate tax is calculated and returned back to the partner’s API and then to the tax interface system. These tax amounts and rates are applied to the SD document item’s pricing at each of up to six levels of jurisdiction denoted by the condition types (XR1 - XR6).