SD uses the country, customer tax indicator, and material tax indicator to read the tax condition records. During pricing execution in sales order processing, the system exits the normal pricing upon recognizing a condition type 1 (delivered UTXJ). The tax condition records are then read using the country and tax code maintained in the pricing condition record.
The tax procedure TAXUSX and the SD pricing procedure RVAXUS contain condition formulas (300 - 306 or 500, 510, 301 - 306 for document Max Tax calculation) which invoke the tax interface system (VERTEX). Once the tax interface system (VERTEX) is invoked, a communication structure with header and items data is filled with the necessary information needed by our partners' tax package to calculate taxes. This communication structure is then passed to our partners API via an RFC (Remote Function Call).
The partners API passes this data to its tax calculation package. The appropriate tax is calculated and returned back to the partners API and then to the tax interface system. These tax amounts and rates are applied to the SD document items pricing at each of up to six levels of jurisdiction denoted by the condition types (XR1 - XR6).
For more information on the configuration, please check this links.
Hope this will help.
Please reward point if helpful.
You also should read the Vertex document "TransLink for SAP R/3 Version 2.0 Supplement". Vertex makes this document available on their website http://www.vertexinc.com/CustomerCafe/menu.asp (under Product Documentation).
Good luck and happy reading