Introduction

E.1 Introduction

In general, Sales Tax is a tax paid to a governing body for the sales of certain goods and services. Similarly, Lease sales tax is the tax collected either on the total up-front lease price or during the lease period.

The sales tax for lease depends on the state and county where the asset is registered and every country has a governing body to collect, monitor and regulate Sales and Usage Tax collection. Depending on the country, the rules to collect sales and usage tax can be controlled by individual State or generalized across states. However, in most of the regions the Sales and Usage tax collection process is categorized as indicated below:

Table E-1 Tax collection type

Category	Tax collection type
Upfront	This type of tax is collected while funding the lease application and a customer has the flexibility to include the tax amount as part of Lease Receivables.
Stream	This type of tax is collected as part of the Customer Service and tax is estimated during billing process, fee assessment and so on. The opening balances are updated and calculated tax is indicated in customer statements.
Exemption	If a customer is eligible for tax exemption during a period of time, an exemption certificate is issued by tax authorities to confirm and exclude the allowed tax components.

OFSLL supports recording, calculating, billing and collecting lease sales and usage tax and provides multiple options to process the calculation internally or through an external third-party vendor like Vertex O Series.

Following are the methods by which you can record and calculate lease tax:

Table E-2 Methods to calculate lease tax

Method	Description
Internal	In this method, you can use the Origination and Servicing modules to calculate lease sales tax based on setup parameters.
External / Vertex	In this method, you can use the external integrated lease tax compliance applications like Vertex to calculate Sales and Usage Tax. Here, you need to only configure the required components in OFSLL which quantify for tax calculation and outsource the actual tax calculation to Vertex.
Manual	In this method, you can calculate the lease tax externally and only update the details into OFSLL Origination and Customer Service modules.

Based on the value defined in the Company parameter XSL_TAX_INTERFACE (SALES TAX INTERFACE), OFSLL determines the method selected for sales tax calculation.

Lease Sales and Usage tax can either be origin based or destination based. Origin based tax or production tax is levied where goods or services are produced. Destination based tax or consumption tax are levied where goods and services are consumed.

During the lease tax calculation, below are the address reference used to refer Source and Destination address.

Source Address refers to the Producer Address
Destination Address refers to the Asset Address

OFSLL supports two Sales Tax Modes (UPFRONT and CYCLE) and two Tax Methods (PURCHASE_PRICE and PAYMENT_STREAM) to determine if the Sales and Usage Tax has to be collected during Origination or Customer Service. Based on state specific rules, the tax details are updated in respective modules with the following combination:

If a Lease contract is configured as UPFRONT/ PURCHASE_PRICE, then Sales and Usage Tax is collected during Origination process.
If a Lease contract is configured as CYCLE/ PAYMENT_STREAM, then Sales and Usage Tax is collected during Customer Service as part Bill/Due generation.

This document contains the following sections:

Parent topic: Appendix : Lease Sales and Usage Tax