This section describes the codes used by Instant Interest and the calculations by which interest is derived.
Coding Structure for Calculation Method
The Calculation Method follows the following convention:
SIM means that simple interest was applied against the amount of tax due; ANN means the interest is compounded annually; DAI means the interest is compounded daily. MON means the interest is compounded monthly; QTR means the interest is compounded quarterly;
The formulas used for the different methods of calculation are as follows:
SIM – Simple
( Annual Rate ) * # of days # of Days in Year Note: See the section on the Coding Structure for Basis of Calculating Days for Exceptions
ANN – Annual Same as simple except that interest is compounded every January 1.
QTR – Quarterly
( Annual Rate ) * # of whole quarters 4 + ( Annual Rate ) * # of days in partial quarter # of days in year
MON – Monthly
( Annual Rate ) * # of whole months 12 + ( Annual Rate ) * # of days in partial month # of days in year
DAI – Daily
( Annual Rate ) * # of days # of days in year
Number of days in calendar year
Certain tax jurisdictions base their interest calculations on calendar years of other than 365 days. By default, Instant Interest calculates daily interest based on the number of days actually in the calendar year (365 or 366). In cases where C&C Software is aware of a tax jurisdiction using a different number of days for a calendar year, Instant Interest will display this on the State Rate Display (View) Screen.
Coding Structure for Basis of Calculating Days
By default Instant Interest calculates daily interest by dividing the tax jurisdiction’s annual rate by the number of days in the tax jurisdiction’s calendar year. Some jurisdictions, however, figure interest as follows:
Annual Rate * # of whole months 12 + Annual Rate * # of days in partial month # of days in year
In cases where C&C Software is aware of this practice, the State Rate Display (View) Screen will show `M/D’ under the Basis column.
Notes on Federal Interest Calculation
Special logic is included in Instant Interest to make the calculation of interest on federal corporate income taxes as accurate as possible. Since January 1, 1983, federal interest rates have been based upon a daily rate calculated as:
Annual Rate * # of Days truncated to 9 decimal places # of Days in Year
This rate is compounded daily and is truncated to 9 decimals each day that it is compounded. (This is the reason that the federal interest rate schedule takes longer to build than the schedules for other jurisdictions.)