Oracle R12 eBusiness Tax: Impacts and Alternatives

Dave Homiak
Vertex Inc.
As tax rules and regulations have changed, so too have tax technology solutions. Spanning a period of over 30
years, Vertex has provided solutions for the Mainframe/Midrange era, the Client/Server era, and now the SOA or
Web Services era. This paper will focus on our current tax compliance solution product family Vertex O Series
and the integrations available for current and future users of Oracle E-Business Suite R12
Leveraging a relationship that extends more than 15 years, Oracle and Vertex have partnered to develop, test and
support a third party tax integration for Oracle eBusiness Tax for R12. By taking advantage of the eBTax
framework, the Vertex O Series integration allows Oracle R12 customers to have access to the reporting and
remittance tools that help streamline compliance processes. Within this document, well explore the benefits of
using Vertex O Series within the eBTax framework to provide an unmatched level of compliancy for US Sales and
Consumer Use Tax. This paper will also show why Oracle chose Vertex as its development and testing partner and
how an Oracle R12 customer would benefit from a validated and supported tax integration.

The Vertex O Series solution was released in 2004. Currently there are over 800 companies who have selected O
Series to help them maintain their tax compliance processes. Over 100 of these companies are running Oracle E-
Business Suite. Specifically, over 50 clients are using O Series with Oracle R12. Vertex has been working with
Oracles Strategy and Development Teams to ensure that a thoroughly tested, validated and supported integration is
made available to new R12 clients and those migrating from 11i.

As the only tax vendor to achieve Oracles Platinum Partner status, this integration further demonstrates Vertexs
dedication to Oracle and their customers by providing solutions to match the Oracle product roadmap and follow the
Oracle development standards and guidelines. Oracle invested a great deal in the Tax module for R12 and Vertex
was heavily involved in the design and development phases of eBTax.

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Strategy Change for Tax Partner Integration
What has changed since Release 11i?

In Release 11i and before, the integration with tax partners was supported only for some Order-to-Cash applications.
The integration logic was coded and supported by Oracle for each tax partner separately. This involved
understanding each tax partners APIs, their parameters, when a particular API had to be called and what values
needed to be passed to that API in different contexts. Due to continuing enhancements to the tax partner APIs, this
integration logic needed revision each time a tax partner delivered a new version of their APIs. This required
understanding the changes made by the tax partner followed by a careful analysis of changes needed in the
integration logic.

In E-Business Suite Release 12, Oracle provides a set of tax interfaces to integrate tax partner systems in a uniform,
clearly defined, and consistent manner. Tax partners can build their solution using different technologies but are
required to provide their services in compliance with the Oracle provided tax interfaces. Oracles goal is to provide a
configurable solution allowing new tax partner services/APIs to be plugged in without building integration code by
Oracle. This configurable solution consists of three tax partner interfaces, each performing a specific tax function
namely calculation of taxes, synchronization of document and tax information, or handling of document level
actions like canceling a document. These interfaces are the single point of integration for tax partners to integrate
with all E-Business Suite applications.

Also in Release 12, Oracle provides a set of additional attributes, at both transaction header and line levels, for its
tax interfaces. Tax partners are expected to decide on whether they will or will not make use of these attributes to
receive additional information specific to them. If a tax partner decides to make use of these attributes, the tax
partner is expected to publish documentation that provides list of extensible attributes used by the partner along with
the purpose of each extensible attribute. The tax partners are also expected to handle any defaulting of values for
these attributes in their code. In order to improve the performance of the extensible attribute derivation, tax partner
needs to provide guidance on when to re-populate the values of extensible attributes. Since these attributes are
transient, i.e. not stored in Oracle repository, tax partner system/user customization must maintain these values.

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eBTax Framework for Building Tax Rules

Oracle EBTax Only Provides Half of the Tax Compliance Solution

Oracle offers three recommended approaches to using EBTax:

1) Use EBTax as the calculation engine and manually enter in the tax data that apply to your company

2) Use EBTax as the calculation engine and subscribe to a validated partners sales tax rate file to import tax
rates and geographical data into EBTax

3) Configure EBTax to leverage a validated partners transaction tax application as the calculation engine and
have geographical data, tax rates and tax rules provided on a monthly basis

Unless your company only operates in one state where only state tax is applied, the first approach should not be
considered an option.

The second approach may be a viable option if your companys profile meets the following criteria:

Nexus requirements in five or less states

Single legal entity or operating unit structure
Requirement only to tax sales orders and invoices
Limited tax implications on the products and services you deliver
In this case, you may be able to research, build and maintain the pertinent tax rules for these limited product
offerings and subscribe to a sales tax rate file service for updated tax rates and geographical data.

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There are several questions to ask before embarking on an EBTax implementation.

What are the hidden costs of using EBTax by itself versus using EBTax with Vertex O Series?
Will your tax department have the time and resources to research, build and maintain perhaps hundreds or
possibly thousands of tax rules?
What is the consequence if the tax rules are configured improperly or are misinterpreted during the initial
research?
An incorrectly configured tax rule can lead to incorrect billings on your customer invoices, causing customer service
issues and potential audit exposure.

Relieving the Burden on Complex Tax Processes

There are several reasons why companies are choosing to implement Vertex O Series to address their complex tax
compliance processes. Both internal and external factors play a role in this decision. From an external standpoint
state and local government audits, especially in the area of Consumer Use Tax, has been the leading factor.

However, in recent years, Sarbanes-Oxley compliance has increasingly been another reason why companies have
looked to automate their tax processes. Stricter controls on business processes and the enforcement of these
processes have led many corporate executives to take tax decision and maintenance out of the hands of order entry
personnel and back into the hands of the tax department.

These tax departments, in many situations, are being pressured to reduce overall compliance costs, while also being
asked not to sacrifice accuracy. Because most taxes are viewed as a necessary evil, IT budgets for implementing tax
systems are very limited.

Its a common belief that Oracle EBTax provides the adequate functionality to maintain product taxability and
rates. Decisions are made by the tax department and implemented by IT departments in the Oracle instance.
However, many large corporations have multiple ERP or financial systems. Now tax departments are forced to
maintain two or three sets of tax data for their R12 instance and each ERP their company utilizes. This increases the
overall cost of internal tax compliance exactly the opposite of what tax departments are being asked to reduce.

In addition, the functionality provided in EBTax may work for companies with very limited tax exposure or
nexus. These companies may not encounter complex taxing situations that require something more sophisticated
than tax rates and customer or product exemption tables. Some examples of limited tax functionality in EBTax
systems include:

The inability to calculate origin based tax, quantity thresholds, or district taxes
No tax rate information
Manual research and update process which is time consuming and costly on tax department
No address validation when creating new customers/vendors
The inability to determine taxation based on how a product is being used
No automated solution to prepare and file returns

Once clients complete an internal review of their tax requirements and determine that a more full featured tax
solution is required, the next step is to understand exactly how Vertex works within the EBTax infrastructure. Later
in this document, we further review the features and benefits of Vertex O Series to address transaction tax
compliance activities. But first, lets review how Vertex leverages the EBTax integration.

Remember, its not Vertex or EBTax.its Vertex with EBTax.

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 Vertex O Series with Oracle E-Business Suite R12
Vertex made the decision to utilize the new functionality and integration points in eBTax rather than create a
customization using the old tax interface that was created for Oracles 11i applications more than a decade ago. By
following the Oracle development guidelines, the Vertex integration is also fully supported by Oracles Support
Center.

Vertex O Series Tax Links for R12 serve as the dynamic integration channel between the Vertex O Series tax engine
and the Oracle E-Business Suite. The innovative design and configuration options of Vertex O Series Tax Links for
Oracle allow tax departments to take control of tax decisions and make changes that affect their companies revenue
with minimal IT assistance. Following Oracles Development standards and guidelines as defined in the eBTax 3rd
Party Tax Integration Guide, Vertex O Series is activated as part of your eBTax setup.

While a client will leverage Vertex O Series to handle the main tasks generally associated with tax compliance,
including rate and rule maintenance, product taxability, tax calculation and reporting, there are some configuration
steps within eBTax that initializes the integration and allows the transaction data to be passed to Vertex O Series for
the appropriate tax determination. Below we outline those high level configuration steps and also point out the
additional steps usually required for an eBTax implementation that are not necessary if you choose to activate
Vertex O Series.

eBTax Setups for Service Providers

Using the standard Oracle integration for EBTax, Vertex needs to be activated as the Service Provider within the
EBTax profile. In addition to establishing Vertex O Series as the Service Provider and Service Subscription, there are
some additional steps that need to be completed under the Tax Configuration Tab in eBTax.

Need to create a Tax Regime Code for US Sales Tax and designate that Vertex O Series will calculate taxes.
This step is completed prior to running the Service Provider API, so that Vertex can be connected with a
specific Tax Regime. For instance, US Sales Tax.

Need to create levels of tax that Vertex will calculate for the Tax Regime
State, County, City, Location (District)

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 Oracles Tax field is mapped to Vertex Tax Jurisdiction attribute. So for the Tax Regime Code in Oracle you need to
create tax lines for all the possible tax jurisdiction levels that can be returned.

Once these tasks are completed, the remaining items across the Tax Configuration menu are pointed to Vertex -
indicating that these functions will be handled by O Series.

All tax compliance activities are now maintained in Vertex O Series, which also handles the appropriate tax
calculation. As mentioned above, if you would choose to use the eBTax engine to calculate taxes, the following
additional setups are required:

Tax Status
Tax Status is the taxable nature of a product in the context of a transaction and a specific tax on the transaction.
Every tax status in Oracle E-Business Tax is defined under a tax and contains one or more tax rates. During
configuration, the client defines exemptions/exceptions at jurisdiction level. Because Vertex provides taxability
rules on thousands of products and services, there is no need to create and maintain in Oracle if using Vertex O
Series.

Tax Jurisdiction
Within eBTax, the client will need to manually setup each taxing jurisdiction or import data file from third
party.
When using O Series, tax jurisdiction is returned from Vertex to Oracle. There is no need to maintain
jurisdiction info for the tax regime code where the service subscription is enabled.

Tax Recovery Rates

Found in VAT or International Taxes, a recoverable tax is that which allows for full or partial recovery of taxes
paid on purchases, either as a recoverable payment or as an offset against taxes owed. This would only need to
be setup if you have a requirement for charging and collecting taxes outside the US.

Tax Rates
Tax Rates must be manually setup and maintained for each Tax Jurisdiction and for each tax event or imported
via a data file. With Vertex O Series, the tax rate is maintained and will be returned from Vertex during the tax
calculation. Again, there is no need to create and maintain Tax Rates in Oracle for the Tax Regime Code which
is using the Vertex service subscription.

Tax Rules
e-Business Tax lets you create a tax determination model to reflect the tax regulations of different tax regimes
and the tax requirements of your business. You can create a simple tax model that makes use of default values

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 without extensive processing or create a complex tax model that considers each tax requirement related to a
transaction before making the final calculation. Because tax logic (max taxes, tiered taxes, modified origin
states, etc) is maintained by Vertex, there is no need to setup and maintain tax rules in e-B Tax if using Vertex
O Series.

Vertex O Series Features and Benefits Global Tax Automation

Identifying the dynamics that are occurring in your company and those that match up with the capabilities of the
Vertex O Series system is the key to planning the most efficient and effective strategy for implementing an
automated tax compliance solution

Consider the following factors and trends that may be taking place within your company:

Management of consumer use tax is becoming a high priority within the tax department.
Company growth has resulted in expanded international operations and value added tax is no longer
manageable as a manual effort.
Evaluations of the current Oracle implementations are occurring and upgrades to newer versions are in the
planning stages.
Merging operations of acquisitions to a centrally managed structure is on the planning horizon.
A new business initiative such as a new on-line storefront or purchasing system will be implemented with
web technologies.
Transactional tax management for multiple divisions will be centralized in a single corporate tax
department.
The IT department has begun a strategy of adopting Web Services technologies for interoperability among
applications.
The IT department has initiated a strategy to reduce maintenance costs across the organization by limiting
application support on client stations.

Another consideration for planning a migration is the modularity of Vertex O Series that allows for a gradual
implementation if necessary. For example:

Divisions can be added seamlessly over time

Additional connections to ERP/Financial systems can be added to a central instance as needed
Implementation can start with sales tax, expand to consumer use tax, and then value added tax as the
project requirements grow

This modular approach allows for a staged progression to full transaction tax automation that can be matched to
your organizations timeline, with low overhead for each planned stage.

When evaluating a plan for implementation, the following benefits of Vertex O Series will likely be a consideration:

EFFICIENT MANAGEMENT OF TRANSACTION TAX PROCESSES

As the tax department becomes more efficient, effectiveness within the organization is increased, costs associated
with tax administration are decreased and the overall value of the tax department to the company is increased. The
right choice of a tax automation system will be a key driver to achieve tax processing efficiency. Getting to the
information needed to perform tasks quickly and easily translates into the tax departments ability to focus on high
value deliverables.

Vertex O Series puts all of the tasks associated with the management of transaction taxes at the fingertips of the tax
professional through a single user interface, Vertex Central. From this browser-accessible user interface the tax
professional can:

Manage mappings to tax categories and overall taxability determination

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 Test the taxability setup using a built-in transaction tester
Look up sales, use, and value added tax rates stored in the system
Run reports of transaction result data for audit support, internal analysis or returns processing

Vertex provides a rich set of content with the Vertex O Series system. Content is updated monthly and supplied as a
downloadable file that can be easily applied to the system. In addition to standard rates the following types of rules
are included in the data set:

Taxability based on what the item is or how it is used with an associated tax result of: exempt, non-taxable
or non-standard rate
Situs determination (identifies the jurisdiction(s) that impose the tax for the transaction)
Tiered tax rates
Maximum tax and maximum basis amounts
Quantity based rules
Percentage basis rules
Rounding rules
Jurisdiction override rules

The appropriate rules are applied to transactions as they are processed by the system based on the set of input
elements included on the request message. Vertexs in-house research staff has developed and performs monthly
maintenance on a comprehensive data set of approximately 70,000 rules for over 8,000 tax jurisdictions covering
over 200 tax categories.
With Vertex as your partner, your tax department can rest easy knowing that the necessary, time consuming research
for compliance is accurate and up-to-date.

GREATER CONTROL
Amplified visibility and improved access to information provides increased value to users of the Vertex O Series
system. As user access increases, the need to have greater control over the systems user environment becomes very
important and is managed in two ways:
Role based security an administrator defines the areas of the application that are accessible by different users
of the system.
Activity Log an on-line log tracks user activity by documenting the user name, date, and time of changes that
could affect taxability.

These features, when deployed appropriately, can become an important component of an effective internal control
environment. This benefits companies that are reviewing their control environments, particularly those subject to the
Sarbanes-Oxley Section 404 audit requirements.

EXPANDED CALCULATION CAPABILITY

Automating sales tax calculations can be just the beginning of a fully automated transactional tax system that
includes calculations for consumer use and value added taxes. Increased focus by many states on consumer use tax
compliance is making automation in this area of transaction tax a top priority. Unlike sales tax which is collected
from purchasers, consumer use tax is a direct expense to a companys bottom line. Accurately tracking these
calculations can have a direct cost savings that will quickly return the investment in a tax automation system. Vertex
Consumer Use Tax O Series can automate the calculation of tax on purchases, verify that accurate tax is charged on
invoices from vendors and supply the proper tax to be included on Evaluated Receipts Settlement (ERS) processing.

Expansion into global markets is a common growth strategy for many corporations. But with this new opportunity
comes the responsibility for the tax department to stay current with complex rules and regulations associated with
value added tax, which vary greatly from country to country. Non-compliance can result in unexpected penalties and
fees. Vertex Value Added Tax O Series can provide the level of automation that is needed to stay on top of the
complex and ever-changing rules associated with selling goods and services across borders.

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INCREASED GRANULARITY OF TAX DETERMINATION
Vertex O Series calculates with a high level of precision for both jurisdiction identification and taxability
determination.

Jurisdiction Identification the Vertex TaxGIS component of the system identifies a set of tax jurisdictions
applicable to a given address. Proper identification of tax jurisdictions is the foundation for accurate tax calculation
and is achieved with the following features:

US Postal Service Data, Geographic Information System (GIS) Data, and Vertex Research are combined for
precise identification of tax jurisdiction boundaries.
Highly granular with unique tax areas for district level jurisdictions. Examples include: Police Jurisdictions,
Transportation Districts, Hospital Service Districts, Community Library Districts, Metropolitan Transportation
Authority Districts, Football Stadium Districts and many others.
The system handles scenarios when multiple overlapping jurisdictions are relevant to a specific location.
Web Services Interface can be used for pre-assignment of Tax Area IDs to Customer Address information in
ERP/Financial System.
Taxability Determination Vertex O Series can calculate tax using a set of input data elements that drive
taxability such as:
o Customer and Customer Class
o Product and Product Class
o Purchase and Purchase Class
o Vendor and Vendor Class
o Company and Division

In addition, a greater degree of precision is available with an extendable set of flexible input parameters. These input
parameters can be defined as any set of data elements that are relevant for taxability determination for your
companys specific implementation. Flexible input parameters can be effectively used for conditions like a specific
usage for an item, or a type of business purchasing the item. When even greater flexibility is needed for very
specific tax scenarios, logical expressions and mathematical operations can be performed on any combination of
inputs to determine single or multiple conclusions. All of these input options can be used to invoke either Vertex
supplied or user-defined rules in the system.

GREATER FLEXIBILITY AND CONTROL FOR REPORTING

To be fully effective at managing transaction taxes, a tax department needs a view into the transaction result data
history and a set of tools to transform the data into valuable information. The Vertex O Series reporting database
provides valuable information that is needed for audit preparation and support, and management of day-to-day tax
administration and compliance. With the reporting database as a single source, the tax department can:

Run standard, pre-formatted reports with flexible input filter criteria for:
o Transaction data at the line item level, jurisdiction summary level, and state level recap summary
o Taxability data such as product, customer, exemption certificates, and others

Create ad-hoc, custom reports using the Vertex Reporting and Analysis module. With this tool the user can:
o Limit and sort the data set using advanced techniques and drag and drop selection of the data
fields
o Create a Pivot table that will automatically roll-up totals to appropriate rows and columns
o Create a chart (of any type, bar, pie, line, area, etc.) by simply selecting the data fields of interest
o Create a formatted report that can use any combination of elements (charts, pivots tables, etc.)
o Add corporate standard title pages, headers and footers to the custom reports

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 Manage the historical data using archive, purge and restore utilities:
o Archive historical data sets to manage database size
o Restore selected data sets as needs arise
o Create reports and perform analysis on restored data sets

REDUCED IT MAINTENANCE COSTS

Vertex O Series has the following benefits for the IT department that is implementing and maintaining the product:
Vertex O Series is deployed on a web application server. Clients only require an Internet browser to access
Vertex Central. This centralizes maintenance and reduces costs for multi-user environments.
The calculation engine in Vertex O Series is integrated with the ERP/Financial system using XML standard
messages and web services. Upgrades to the tax calculation system can occur independent of financial system
upgrades for easier maintenance.
Implemented with Java, Vertex O Series is platform independent and supported on a broad set of operating
systems, web application servers and databases. This solution can adapt to your IT departments chosen
technical environment without forcing specific technologies that may be expensive to support.
Tax determination rules are all represented in data and not embedded in calculation engine code. As
jurisdictions change laws, the system can be maintained in compliance with a simple data update rather than a
software upgrade that may be more time consuming to deploy in production.
Vertex O Series can be deployed either in a remote call or a direct call model. The calculation engine is
deployed on the same server as the calling application or on a separate central tax server where messages are
exchanged over a network. Centralization can support multiple internal systems such as ERP, CRM,
eCommerce applications, or Purchasing/Procurement systems - any system that has a need for an accurate
sales, use, or value added tax calculation.

Implementation Realizations and Challenges

Clients realize a number of significant benefits from Vertex implementations.

Noticeable cost savings resulting from the verification of taxes assessed on purchase orders
Increased cash flow by not having to put as much money in reserves to pay future taxes
o with Vertex they could accurately assess what their future tax bills would be
Staff in the Tax, Accounts Payable, Purchasing and Finance departments were freed to work on more strategic
projects since they were no longer handling the manual tax efforts
Gained confidence in the data and felt less exposed for audits
o Having a central place to store and retrieve data along with a defined set of taxation parameters
has made an enormous impact on the organization.

Along with the realized benefits of an O Series implementation, clients have experiences some challenges as well.
One client indicated that the most challenging aspect to the implementation was a mid-stream change in client
leadership. This required Vertex and the client to review the project objectives and timelines midway through the
engagement before proceeding with the implementation project plan causing a delay in the planned go-live date.
Other clients have expressed that they were not as prepared for the implementation as they should have been. For
example: a prepared tax decision matrix or spreadsheet or identifying internal liabilities.

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Summary/Conclusion

Throughout this analysis, weve examined why EBTax, while a viable option for smaller clients, simply falls short
of providing the level of compliance tools that Vertex can provide for larger corporations. Oracle develops excellent
ERP applications; however, their core competency does not include providing tax rules, tax rates and tax logic
which is the basis for a complete tax compliance system.

Earlier, we represented what EBTax provides through the illustration of a building skeleton or framework. While
this framework is an essential piece of any building, it is useless without all the additional components that make a
building complete.

With Vertex O Series, in combination with EBTax, Oracle R12 clients are given the opportunity to complete that
structure

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