Tax Rule

Because the correct tax on a transaction is a function of several facts the system already knows, and asking a human to compute it is asking them to be wrong occasionally and undetectably.

Tax rules are where compliance either becomes automatic or becomes a monthly reconstruction. Configured as determination — derived from item, party and place — the return is a report. Configured as selection — a dropdown someone picks from — the return is an investigation, and every past period is only as correct as the least careful person who raised an invoice in it.

• Tax is determined by the transaction, not chosen by the user. A rate someone types in is a data-entry decision masquerading as a tax position.
• The determination depends on at least three inputs: the item's classification, the counterparty's status, and the place of supply.
• A tax rule change applies from a date forward. Retroactively editing a rule silently restates transactions already filed.

It gets set up for the common case and left there, because the common case is 95% of transactions and it works. The remaining 5% — inter-state, exports, reverse charge, exempt goods — are handled by someone overriding the default from memory. That person leaves, and the error rate becomes whatever their successor guesses.

• Reverse charge, where the buyer remits tax the supplier would normally collect and the invoice shows no tax at all.
• Composition-scheme suppliers, who charge no GST and pass on no credit — your cost is the full invoice.
• Exports and SEZ supplies, zero-rated with or without payment of tax, each with a different refund path.
• Mid-year statutory rate changes, where the applicable rate depends on the transaction date rather than the posting date.
• Bill-to and ship-to in different states, where place of supply follows a specific rule rather than the delivery address.