Configuring Customer Master Data (SD) 

Use

You must define the possible tax classifications for the tax category that appear in the customer master data on the billing screen.

The customer tax classification indicator is used as a key in automatically determining the tax code within SD. A tax code can be customized to bypass the external tax system for tax calculation and force tax exemption in SAP by returning zero tax rates and zero tax amounts.

Therefore, the tax classification is used by the SAP system internally to indicate whether the customer is exempt from sales tax payment. If all tax exemption handling were done by the external tax system, then the tax classification indicator on the customer is set to taxable. Alternatively, if for some customer master records, tax exemption handling is done in SAP, then the tax classification indicator on those customer master records is set to exempt from sales tax payment.

Procedure

...

      1.      In Customizing for Sales and Distribution, choose Basic Functions ® Taxes ® Define Tax Relevancy of Master Records. ChooseCustomer Taxes. You can also use transaction OVK3 (Table TSKD).

Customer tax classification indicators are defined based upon tax category UTXJ for the US and CTXJ for Canada.

      2.      Create the allowed customer tax classifications.

You create the entry 0 for tax exempt and 1 for taxable.