Tax components allow you to combine different taxes into a single group. For example, a sales tax might combine a state level and local level tax.
To add and define tax components in a tax group
- If you are not already on the Tax Group page, navigate to Admin > Setup > Tax Groups > Select the Tax Group name.
- Click the Component tab.
3. Add the following information:
a) Component Name: This information is mandatory. Select a tax
component from the list of available tax components.
To create additional tax components, contact Support.
Note: If you are shipping products within the US or Canada, you
can pick Location Sales Tax from the Component Name
b) Tax: Based on the tax component selected, the tax % shows up
automatically. If required you can edit the tax %.
c) Apply Tax On: Choose whether to apply tax on the Base price or
Discounted price of the service.
Example: Consider that a service costs $1000 and a discount of 10%
is applicable to it. If you choose to apply the tax on the base price,
the tax applies on $1000 and if you apply the tax on the
discounted price, the tax applies on $900 ($1000 – 10% discount).
d) Calculation method: Select one of the following calculation
- Simple: Calculates the tax based on the net price.
Example: If a service costs $1000 and the service tax is 5%, then the total tax applicable for the service amounts to $50 ($1000 * 5%).
The guest needs to pay a total of $1050 [cost of service ($1000) + Service Tax ($50)].
- Compound: Calculates tax on the subtotal after simple tax is applied.
Example: Consider that the cost of the service is $1000. After applying a service tax of 5%, the subtotal of the service amounts to $1050 [Cost of service ($1000) + Service Tax ($50)].
Now adding a 3% compound tax on the subtotal of $1050 will amount to the guest paying a total $1082.
Thus, the compound tax is calculated as follows:
[(cost of service + Primary Tax) + Compound tax]
- Surcharge: Select if you want to charge a percentage of the tax levied on the invoice.
Example: Consider that the cost of the service is $1000 and the total tax levied on the invoice is 8%.
The total tax payable for the service is $80 ($1000*8%).
Now adding a surcharge of 2.5% on the total tax, amounts to $2 ($80*2.5%).
The guest thus needs to pay a total of $1082. This is calculated as follows:
[(cost of service ($1080) + total tax levied on the invoice ($80)] + surcharge on tax levied on the invoice ($2)
e) % of Price to Tax: Enter how much percentage of the sale item must be
taxed. Typically, this is set to 100%.
Similarly, click Add to add multiple tax components to the tax group.
- Tip: After adding a tax component, you can drag and drop the components in the window to change the order of execution. This is important if you have chosen the ‘Compound’ or ‘Surcharge’ calculation methods.
- Tip: After adding a tax component to the table, you can modify the component name, tax percentage, or taxable amount by clicking the current value in the table.