How Compound Taxes are Calculated
Compound taxes are taxes added to other tax rates when they are applied, NOT to the original selling price itself.
Compound taxes are calculated in the following order:
Example: You have configured a Tax Schedule with three Tax Rates.
- Tax Rate 1 - Regular
| Range #1 | $.01 - $10.00 | 1% |
| Range # | $10.01 - $200.00 | 5% |
| Range # | $200.01 - No limit | 10% |
- Tax Rate 2 - Regular
| Range # | $.01 - $20.00 | % |
| Range # | $20.01 - $200.00 | % |
| Range # | $200.01 - No limit | % |
- Tax Rate 3 - Compound
| Range # | $.01 - $20.00 | % |
| Range # | $20.01 - $200.00 | % |
Each regular range tax is calculated and applied and then the compound tax is applied to the new total.
Example:
| 1. | Determine the parts (or labor) total on the order. | $150.00 | |
| 2. | Calculate Regular Table 1 tax | $150.00 * 5% | = $7.50 |
| 3. | Calculate Regular Table 2 tax | $150.00 * 7.5% | = $11.25 |
| 4. | Add table 1 tax and table 2 tax to the Parts total | $150.00 + $7.5 +$11.25 | = $168.75 |
| 5. | Calculate Compound Table 3 tax | $168.75 * 15% | = $25.31 |
| 6. | Add Parts total and all taxes to determine the final parts total. |
$150.00 + $7.5 +$11.25 + $25.31 or $168.75 + $25.31 |
= $194.06 |