As we know, each country has a tax procedure. Tax procedure is a list of tax condition types and each condition type represents a type of tax.
Tax percentage against each tax condition type is maintained in tax code.
Why is the need for tax jurisdiction code?
In USA, tax authority is different for each area and tax authority decides tax percentage in that area. Hence the tax percentage applicable on a business transaction depends upon which area the transaction belongs to (tax to be paid to which tax authority).
Sap handles this requirement by using concept of tax jurisdiction code. Each tax authority is created as a tax jurisdiction code in sap.
Tax jurisdiction structure
Since tax jurisdiction code is to identify which area or which tax authority is involved in business transaction hence by looking at tax jurisdiction code you should be able to identify the area.
Hence tax jurisdiction code is created in such a way that it answers below
Tax jurisdiction code is composed of codes which represent state/ county/ city/ district.
3 alphanumeric digits representing state
2 alphanumeric digits representing county
4 alphanumeric digits representing city
3 alphanumeric digits representing district
Tax jurisdiction code = (State + county + city + district)
Defining how many characters which represent state, how many characters represent county, how many characters represent city and how many characters represent district is known as tax jurisdiction structure.
Composition of tax jurisdiction code is knows as tax jurisdiction structure.
Before creating tax jurisdiction code, tax jurisdiction structure has to be defined in the system.
How is tax percentage maintained when tax jurisdiction code is used?
Tax percentage against tax condition types is maintained in combination of tax code and tax jurisdiction code.
In a business transaction, how system decides tax jurisdiction code?
Entered document has company code. Company code leads to country, country leads to tax procedure. Procedure has condition types but tax percentage for condition types is maintained in combination of tax code and tax jurisdiction code.
When document is entered, tax code is input but jurisdiction code is not input. So how does system identify which jurisdiction code to use?
System fetches tax jurisdiction code from
- Involved parties in the transaction like vendor master, customer master
- Objects involved in transaction like internal order master, cost center master, profit center master.
Note: Tax jurisdiction code is maintained in vendor master, customer master, internal order master, cost center master, profit center master etc.