ONESOURCE Indirect Tax Determination

Tax determination is the process of calculating the tax due based on factors such as the type of transaction, the location of the buyer and seller location, and applicable tax laws. This process helps businesses to comply with regulations by accurately collecting and remitting taxes. IT requires identifying the appropriate jurisdiction, applying relevant tax rates, and considering any exemptions. Many businesses rely on specialised software to automate and streamline this process, ensuring accuracy especially when dealing with multiple jurisdictions and complex transactions.

Sales tax is collected at the final point of sale to the end consumer, with the retailer collecting and remitting the tax. In contrast, VAT is applied at each stage of production and distribution, with businesses charging VAT on sales and receiving credits for VAT paid on purchases. Sales tax rates and rules can vary by local jurisdiction, while VAT is usually consistent at a national level.  This results in different compliance requirements and accounting processes for businesses under each system.

Different jurisdictions impact tax determination by introducing variations in tax rates, laws, and rules. Businesses must navigate these differences to apply the correct rates based on the transaction location. Jurisdictions may have unique rules regarding exemptions, thresholds, and tax treatments. Compliance requirements, such as registration and filing, can also vary. Additionally, businesses must consider nexus definitions, which determine tax obligations based on physical presence or economic activity. These complexities often necessitate the use of specialised software to ensure accurate and compliant tax determination across multiple regions.

Tax determination software automates tax calculations to ensure accurate and compliant handling across different jurisdictions. By reducing manual process, it minimises errors and helps business scale efficiently. The software provides real-time tax calculations, integrates with accounting and source systems, and features advanced reporting capabilities, making tax management simpler and allowing businesses to focus on their core operations.

Businesses can stay informed through regular updates from tax authorities, subscribing to industry newsletters, consulting with tax advisors, and using tax determination software that integrates updates to tax regulations automatically.