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:
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Line amount: 1000 USD
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State tax rate: 20%
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County tax rate: 10%
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Compounding regime: Sale and use tax
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Compounding tax: State tax
The tax calculation is as follows:
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The state tax is equal to the invoice line amount multiplied by the state tax rate (1000 USD * 20% = 200 USD).
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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).