Taxtion in Current RMS is calcuated using:
- Organization and product tax classes
- Tax rates
- Tax rules
Organization and product tax classes
To add organization and product tax classes, head to System Setup > Organization tax classes or System Setup > Product tax classes.
This is to simply maintain tax classifications for your customers, suppliers, manufacturers and stock. All you need to enter is a name.
Tax classes are used in conjunction with tax rules and tax rates to determine the taxes that are applied.
To add tax rates, go to System Setup > Tax Rates.
Tax rates are used by tax rules to calculate tax charges on an opportunity and invoice. Some system default tax rates may have already been created for you.
A tax rate is associated with a country, a state and optionally an area (zipcode range). The options available here will vary depending on the country selected. Current uses these geographical values to select an appropriate tax rate for an opportunity or invoice - this is matched to the address determined by the setting “Tax Calculation Based On” found in System Preferences.
Creating a tax rate is simple – tell Current the name, country and percentage and Current works it out from there. When you’re done, click the blue Create button.
Find tax rules in System Setup > Tax rules.
Tax Rules are defined as a combination of an organization tax class and a product tax class with a tax rate. Each customer will be assigned a class and each product is assigned a tax class. Based on the class of the customer, the class of the products on an opportunity or invoice, and the region, Current will calculate the appropriate tax charge amount.
When calculating tax charges Current will select all tax rules that meet the following criteria:
- Match the customer’s organization tax class
- Match the product's product tax class
Once all applicable rules have been matched, Current will then evaluate each rule in reverse priority order (ensuring the lowest priority rule is applied last). A tax charge is calculated using the selected tax rates for the rule - the region (address as specified above) is used to filter the selected tax rates.
You can create multiple tax rules, this allows for countries or regions where there is more than one tax charge to be applied to a product or service. Where multiple tax rules are used you can use the priority to determine the way in which the tax charge is calculated. Lower numbers have higher priority. If two tax rules with the same priority apply then the taxes are added together. If two taxes with a different priority apply then the taxes are compounded. When taxes are compounded, the tax is calculated on the subtotal amount, and then the second priority tax is calculated on the subtotal plus the first priority tax amount. Compound taxes are calculated in priority order.
Organization & Product Tax Classes
Select the organization and product tax classes that are applicable to this rule.
Select the tax rates that are applicable to this rule.
Where multiple tax rates are selected these are first filtered based on address (see above), where multiple rates apply these are combined when calculating the tax amount for this rule. For example, if you have two applicable tax rates that were 10% and 2.5% respectively, the total tax charge would be 12.5% of the goods amount.