In the throes of a big ERP implementation of Oracle R12 and evaluating business processes and key features, it is easy to overlook the importance of valid addresses for customer sites, supplier sites, and internal locations.
Obviously, a valid address is important for physical logistics when identifying a location for delivery or shipment of goods but valid addresses are critical for accurate tax treatment and tax calculations.
The TCA in R12 now includes the geography hierarchy. This geography structure is defined to include each component of an address for a specific country. The geography hierarchy builds on the components from the highest level to the lowest level. For the United States, the geography structure has five types or elements and geography hierarchy records are built as follows:
A Type of ‘Country’ will have only Geography Element 1 for the country value
A Type of ‘State’ will have Geography Element 1 for country and Geography Element 2 for State (example: US > Texas)
A Type of ‘County’ will have Geography Element 1 for country, Geography Element 2 for State, and Geography Element3 for County (example: US > Texas > Denton)
A Type of ‘City’ will have Geography Element 1 for country, Geography Element 2 for State, Geography Element3 for County, and Geography Element 4 for City (example: US > Texas > Denton > Frisco)
A Type of ‘Postal Code’ will have Geography Element 1 for country, Geography Element 2 for State, Geography Element3 for County, Geography Element 4 for City, and Geography Element 5 for Postal Code (example: US > Texas > Denton > Frisco > 75034)
In R12 EBTax, one of the components of the Regime-to-Rate structures is the Tax Jurisdiction. A Jurisdiction must be associated with a single, existing geography hierarchy record and a Tax Rate will be associated with a single Tax Jurisdiction.
When a transaction is evaluated for tax treatment, each of the locations (addresses) on the transaction is compared and matched to a geography hierarchy record to determine what tax jurisdictions (and subsequently what tax rates) should apply to the transaction. If there are ‘gaps’ in the address such as a missing county or invalid city value, the location address cannot be matched to the lowest level geography hierarchy record and so any jurisdictions or tax rates tied to the lower level geography hierarchy records will not be applied.
It is imperative to define granular geography hierarchy records and to set address validation controls early in the implementation process so that addresses are created with all the necessary and valid components to achieve an accurate and complete tax calculation.
