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Controlling How Products with Components Are Taxed

The components of products with components can have different tax rates.

For example, a company may sell a product with components called Concrete Services. As its components, this product may have the cost of concrete, the cost of using a truck to pour concrete, the cost of labor, and the cost of engineering services. In some jurisdictions, these components may be taxed at different rates.

You can control how tax is computed by setting the Tax Subcomponent flag. To tax the components individually, set the Tax Subcomponent flag on the root of the product with components or bundle. If you do not set the Tax Subcomponent flag, the tax is computed on the total price of the product with components or bundle.

If one of the components is itself a product with components, you can set the Tax Subcomponent flag on the component. This causes the tax for that component to be the sum of the tax computations on the components of that component.

Note the following points about taxing components:

• You cannot use a base price for the parent product if the components are taxed individually. The parent product price must be the sum of the prices of all the component products. You will get inaccurate results if you give the parent product a price, and then do delta pricing on components and compute tax at the subcomponent level.
• When you set the Tax Subcomponent flag for the parent product, you can either set this flag or not set it for each component product that has subcomponents. If you don't set this flag on a component, the tax will be calculated for the component product. If you do set the flag on a component, the tax for the component will be based on the tax of its components.
• When you set the Tax Subcomponent flag for a component of a product, you must set this flag for the parent product as well. If you do not, you will tax the entire product at the parent level, and you will also tax the component product. This double counting will cause an inaccurate tax calculation.

The tax will be calculated accurately if you apply volume discounts or bundling discounts to the product. These discounts are applied at the component level, so the tax on each subcomponent will be adjusted to reflect the discount.

CAUTION:  You cannot use simple bundles for pricing when tax rates of components are different.

To tax the components of a product with components or bundle

1. Navigate to the Administration - Product screen.
2. In the Products list, select the desired product with components or bundle.
3. Expand the product form and put a check mark in the Tax Subcomponent Flag check box.