1. Implementing Tax
  2. Example of Tax Calculation Tax Formula

Example of Tax Calculation Tax Formula

The tax calculation tax formula is used to determine the calculation methodology that is applied to derive the basic tax amount on a transaction line.

Scenario

Consider a situation when two taxes, state tax and county tax, are applicable on a transaction. In such a situation, the transaction details and tax setup is as follows:

  • Line amount: 1000 USD

  • State tax rate: 20%

  • County tax rate: 10%

  • Compounding regime: Sale and use tax

  • Compounding tax: State tax

The tax calculation is as follows:

  • The state tax is equal to the invoice line amount multiplied by the state tax rate (1000 USD * 20% = 200 USD).

  • The county tax is equal to the invoice line amount multiplied by the county tax rate plus the state tax ((1000 USD * 10%) + 200 USD = 300 USD).

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