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Note 81: Using Taxation Details Within Billing

Where governments tax the business domain being billed, the billing system will be a key calculation point since taxes are likely to be calculated on the finalised amounts billed to customers. That is, the final amount after all rating / pricing has been performed, and after any discounts have been applied.

The financial and corporate consequences of miscalculating taxation often ensures the functionis maintained centrally and monitored closely. The taxing jurisdictions will be keen to collect their revenue (taxes) regardless of whether the biller has calculated it correctly. If the biller has under-calculated the tax amount then they will likely be out of pocket for the balance; if the biller has over-calculated the tax amount then they will likely have to fix their calculations, determine the error amounts, and perform refunds to customers.

 

 

The manner and calculation methods to be applied will depend on the business domain being billed, the products being taxed, and the government jurisdiction’s taxation rules. Where a biller has multiple billing applications, a transaction should receive the same tax treatment regardless of which billing system processing is performed within.

With tax calculation being such an important business function, taxation related databases are a likely candidate for being treated as a ‘database of record’ (DBoR). A centrally maintained repository can be distributed to the business applications who require it, such as billing.

A taxation example is Australia’s federally applied ‘Goods and Services Tax’ (GST), currently (2013) set at 10%, which is applied to almost all products billed in Australia. The same billing performed for overseas ‘Australian Territories’ does not apply the GST. A biller’s taxation database / function must therefore identify which products will have GST applied, and the billing system must identify any network services / products that are located in the overseas ‘Australian Territories’ so that GST is not applied (regardless of the product-based taxing decision).

Another example is the taxation applied in the United States which can be performed differently at Federal, State, County, City and (occasionally) sub-City levels. In these cases the biller’s taxation database / function must determine which of these different levels apply for a charge, the appropriate taxation methods to apply (by product) and their rates. The different levels and multiple jurisdictions at each level (e.g. states, counties) will have classified how the same products are viewed differently ‘for taxation purposes’ (i.e. local exceptions). Examples of how the tax may be applied include based on a fixed (dollar) amount, a percentage of the final charge, or by the quantity of product being purchased.

taxes in jar

A transaction should receive the same tax treatment regardless of which billing system processing is performed within.

Taxing jurisdictions will want to collect their revenue (taxes) regardless of whether the biller has calculated it correctly.

To address the difficulties of performing taxation correctly, external (vendor) tax packages may be employed by a biller, thereby relying on the specialised knowledge of the tax package vendor to determine the correct manner in which tax should be applied (including any local jurisdiction exceptions). By updating the vendor’s tax package databases, and relying on the vendor’s ‘expert knowledge’, the biller can reflect how taxation rules change over time into their billing process.

Pre-taxed transactions received from outside organisations as part of a third-party billing arrangement will need a careful determination of their tax position to be agreed. That is, who has liability for the correct calculation of the tax amount(s), and who will be paying the calculated tax to the appropriate jurisdiction(s). The biller will collect the tax amount from the end customer as part of the regular billing process, but an agreement of what happens next with the tax amounts (along with what happens when the customer does not pay their bill) should be determined.

Originally posted by

- 09 April 2014

 

 

Links to other Notes

Previous: Using Billing Notes and the Contact History

Next: Using Billing Addresses


 

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Recent Posts on purebill.com

» Processing Disputed Charges - Whilst most bills are accurate and accepted by customers, some customers will want to query or contest the charges appearing on their bills.

» Using Bundling and Differentiated Pricing - Using bundling and applying different pricing by market segments, billers can realise the most for their products and services.

» Business Practices Implemented Through Pricing - The price billers charge for their products can influence customer's consumption behaviour by increasing or decreasing their likelihood to purchase.

» Billing Pricing Models: Explaining Customer Impacts - Biller’s decisions about how they charge for their products and services result in pricing models that influence both a biller’s processing complexity and customers' behaviour.

» Billing Addresses - A billing application uses addresses in a wide variety of roles to describe the source locations of incoming transactions (from the network), details about the customers (and their representatives) who are billed, and the destinations to which the outputs from billing will be sent.

» Using Taxation Details Within Billing - Where governments tax the business domain being billed, the billing system will be a key calculation point since taxes are likely to be calculated on the finalised amounts after all rating / pricing has been performed, and after any discounts have been applied.

» Fraud Detection: Using Called Numbers To Find New Targets - Fraud occurs on phone networks, and when detected, it is closed down and stopped on the phone numbers on which it was detected. But how can the same bad actors / fraudsters be detected if they start up on new fraudulently obtained phone numbers, or have other existing phone numbers on the same network?

» Using Billing Notes and the Contact History - Billing applications make ‘contact’ with the biller’s customers each time a bill or reminder notice is sent, and whenever customers ring or email the biller’s staff with billing-related inquiries and requests. A billing note is one mechanism for capturing the key details of these customer / biller interactions. When a customer contacts the biller subsequently, the biller’s staff can review the customer’s prior contacts by looking at the notes that were recorded.

» How Does Payment Allocation Work? - Payment allocation is the association of credit amounts, such as new payments and adjustments, against a customer's outstanding debts (e.g. unpaid bills / invoices). There are different approaches for allocating credits against the customer's outstanding debt(s).


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Stephen Jones

Stephen Jones is a consultant who has focused specifically on Billing and related processes for over twenty years. Recent work has included relating a major telco's billing with inbound call centre logs for Call Centre Analytics.

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I contributed an essay on testing design assumptions in the O'Reilly book 97 Things Every Software Architect Should Know. This book was written in an 'open source' style with more than four dozen authors. The original essays of the axioms / koans / advice can be viewed on the project's wiki.


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