The standard tax tables (accessed via transaction code FTXP) are used to store the tax rates for various tax codes that are applicable for different countries as well as for different tax jurisdictions in countries such as Brazil, Canada, India, and the United States. However, this table does not allow you to enter a tax rate with more than three decimal places.

In most cases, this is sufficient, because a three-decimal place percentage means that the rate calculates at five decimal places (e.g., 3.685 percent is the equivalent of .03685). However, there are some cases for which a four-decimal place percentage is required (e.g., California’s new resale of capitalizable items tax). This setting cannot be altered in the standard system without a major restructuring of the tables. Even SAP’s key tax software partner, Vertex, allows only three decimal places. Therefore, a workaround is required. I describe this workaround using California’s resale of capitalizable items tax (3.8125 percent) as an example.

The steps that are needed to implement this workaround are as follows:

1. Create new condition types
2. Create a new transaction key
3. Change the tax procedure
4. Configure a tax account
5. Create a new calculation formula
6. Insert the formula in the tax procedure
7. Enter the tax rate

Step 1. Create New Condition Types

You need to create a new condition type for this new tax rate. The condition type is a field that allows you to differentiate between different types of tax rates and calculations in the tax procedure. It is not advisable to use an existing standard condition type because you will be making a slight modification to the program code to which this condition is assigned. In my example, you create two condition types, as it relates to use tax (or self-assessment tax).

A use tax is a self-assessment. It means that the tax is levied on a purchase in another US state as if the purchase were made in your own state. One condition represents the tax rate and the other represents the self-assessment percentage (i.e., the percentage of the sales tax that you want to accrue). If you are only changing a sales tax rate that has no self-assessment element, then you only need to create one new condition type.

To create a new condition type, follow menu path Financial Accounting (New) > Financial Accounting Global Settings (New) > Tax on Sales/Purchases > Basic Settings > Check Calculation Procedure. In the pop-up screen (Figure 1) double-click Define Condition Types.

Figure 1

Check the calculation procedure

The new condition types can be copied from existing ones. For example, you can copy the condition types JP1I and JP1U by highlighting the condition type as shown in Figure 2.

Figure 2

Highlight the condition type

Click the copy icon  and in the next screen (Figure 3), change the condition type name (Condit. type) and enter a description. Click the save icon  to save your settings. Everything else should be left the same.

Figure 3

Create condition type ZP1I

You can then follow the same approach for condition type JP1U by copying it to ZP1U and changing the condition name and description as shown in Figure 4.

Figure 4

Create condition type ZP1U

Step 2. Create a New Transaction Key 

You need to create a new transaction key if you want the new tax rate to be directed to a different general ledger account. This transaction key is used to determine the accounts and posting keys for the tax line items that the system creates automatically.

To do this, follow menu path Financial Accounting (New) > Financial Accounting Global Settings (New) > Tax on Sales/Purchases > Basic Settings > Check and Change Settings for Tax Processing. In the screen that appears (Figure 5), highlight transaction key MW1 and click the copy icon. 

Figure 5

Highlight transaction key MW1

Alternatively, you can create the transaction key from scratch by clicking the New Entries button. This action takes you to the same screen as when you click the copy icon. Enter the details as shown in Figure 6. 

Figure 6

Define a transaction key

Step 3. Change the Tax Procedure 

You need to insert the condition types and transaction key that you created into the tax procedure. The tax procedure specifies the conditions that are allowed for entering tax rates and the sequence in which they are used.

To complete this step, follow menu path Financial Accounting (New) > Financial Accounting Global Settings (New) > Tax on Sales/Purchases > Basic Settings > Check Calculation Procedure. This path brings you back to the screen shown in Figure 1. Double-click Define Procedures to see the list of existing tax procedures in the system. Scroll down to the procedure TAXUSJ (Figure 7). 

Figure 7

Highlight the tax procedure

Highlight the tax procedure TAXUSJ and double-click the Control Data folder. This action inserts the new condition type (ZP1I  in my example) in the Reference Step Overview screen (Figure 8).

Figure 8

The Reference Step Overview screen for condition type ZP1I

Next, insert the second condition type ZP1U (complete the same steps that you followed for  inserting condition type ZP1U) and the new transaction key ZW1 in the tax procedure as shown in Figure 9. Note that this setting is specific to the Use tax. This is because the first condition holds the tax rate, which in the US is nondeductible input tax assigned to transaction key NVV. The second condition holds the self-assessment percentage, which is assigned to the new transaction key ZW1. If you are not working with a self-assessment tax rate, then you only insert one condition type, which has the new transaction key assigned to it.

Figure 9

The Reference Step Overview screen for condition ZP1U

Step 4. Configure a Tax Account 

The tax general ledger account needs to be assigned to the new transaction key. To do this, execute transaction code OB40 or follow menu path Financial Accounting (New) > Financial Accounting Global Settings (New) > Tax on Sales/Purchases > Posting > Define Tax Accounts.

The screen that appears (Figure 10) lists existing transaction keys. Scroll down to the new transaction key that was created (ZW1 in my example).

Figure 10

The transaction key for taxes on sales or purchases

Figure 11

The Chart of Accounts screen

Press the Enter key or the green check mark and click the save icon. Click the Posting Key button (not shown) so that you can enter the posting keys in the Debit and Credit fields as shown in Figure 12.

Figure 12

Maintain posting keys

Now click the Rules button. In the next screen (Figure 13) select the Tax code check box and click the save icon.

Figure 13

Maintain tax code rules

After you define the rules, you can enter the relevant account by clicking the Accounts button. Enter the tax code (this code is used for the new tax rate) and the relevant account as shown in Figure 14.

Figure 14

Maintain the tax account

Step 5. Create a Routine Formula 

You need to create a calculation formula that performs a calculation on the tax rate that is entered in the tax tables. Remember, the purpose of this workaround is to deal with the issue of the SAP system not allowing an entry with more than three decimal places. Therefore, you need to create a formula that divides the rate that is entered in the tax table (which is in three decimal places) by 10. This in effect makes it a tax rate with four decimal places. The calculation formula allows you to define an alternative way of calculating a tax rate than the method that the SAP system provides.

To complete this step, execute transaction code VOFM. In the top menu (this screen is not shown) select Formulas and > Condition Value. In the screen that appears (Figure 15) scroll down to the bottom of the list to enter new values under Routine number and Description.

Figure 15

Maintain the routine number

Now highlight this line and click the source text icon . Press Enter twice to confirm the two information messages that show up. Now click the Insert button (not shown) and enter the following code xkwert = xkwert / 10 as shown in Figure 16.

Figure 16

Maintain the routine formula

Click the save icon, click the activate   icon, and then click the back arrow icon . Even though you have activated the formula, you still need to go back and and highlight the Routine number and select from the top menu Edit > Activate. This action selects the Active check box as shown in Figure 17.

Figure 17

Activate the routine number

Note that once you transport your settings to the target system, you need to generate Program RV80HGEN in that system for the program to work there.

Step 6. Insert the Formula in the Tax Procedure

After creating the formula, you assign it to the appropriate condition step in the tax procedure. To do this, follow menu path Financial Accounting (New) > Financial Accounting Global Settings (New) > Tax on Sales/Purchases > Basic Settings > Check Calculation Procedure (refer back to Figure 1). Double-click Define Procedures. In the next screen, scroll down to TAXUSJ, highlight this line, and double-click the Control Data folder (refer back to Figure 7). Enter the routine number 960 in the field under the CalTy… (calculation type) column of condition ZP1I as shown in Figure 18.

Figure 18

Enter a calculation type in the tax procedure

Step 7. Enter the Tax Rate

After you make all the relevant settings, you can enter the tax rate for the appropriate country and jurisdiction (if required). To do this, execute transaction code FTXP. In the screen that appears (Figure 19), enter the relevant country and jurisdiction in the Country Key and Tax Jurisdiction fields, respectively. Go to the A/P Cap. Exp. Tax row, and in the field under the Tax Percent Rate column, enter the tax rate (38.125 represents 3.1825). Click the save icon.

Figure 19

Maintain the tax code

After you post a document, you see that the system calculates the tax amount by dividing the entered rate by 10 and thereby using a four decimal place tax rate (3.8125 × 1,000,000.00). The results of this calculation are shown in Figure 20.

Figure 20

Results of a tax calculation based on a tax rate with four decimal places

Paul Ovigele

Paul Ovigele is the founder of ERPfixers, an online micro-consulting platform (https://www.erpfixers.com). He has worked as an ERP financials consultant since 1997 in both North America and Europe, specializing in implementing the FI and CO modules along with their integrated areas for companies in industries such as consumer goods, chemicals, logistics, pharmaceuticals, apparel and entertainment. Paul has delivered numerous training sessions to finance professionals at both the functional and managerial levels, and he has presented at various SAP financials conferences around the world.

You may contact the author at paul@ovigele.com.

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