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Sales tax calculation methods in the Origin field

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This article explains the options in the Origin field on the Sales tax codes page and how sales tax is calculated based on the selected option for a sales tax code.

For each sales tax code that you create on the Sales tax codes page, you must select the method of calculation to apply to the tax base amount in the Origin field.

Percentage of net amount

Percentage of net amount calculation is the default value in the Origin field. The sales tax is calculated as a percentage of the purchase or sales amount, excluding any other sales taxes.

Example

The tax rate is 25%. The invoice line shows a quantity of 10 items at 1.00 each, and the customer is allowed a 10% line discount. Net amount: (10 × 1.00) -10% = 9.00. Sales tax: 9.00 × 25% = 2.25. Total amount: 9.00 + 2.25 = 11.25.

Percentage of gross amount

If you select Percentage of gross amount, the sales tax is calculated as a percentage of the gross sales amount. The gross amount is the line net amount plus all taxes and fees for the line, except the one tax where Origin = Percentage of gross amount.

Example

The tax authority has imposed special duties on an item. The duty amounts are added to the net amount before sales tax is calculated. Given the following sales tax codes:

  • DUTY 1 = 10%, using the Percentage of net amount calculation method
  • DUTY 2 = 20%, using the Percentage of net amount calculation method
  • SALESTAX = 25%, using the Percentage of gross amount calculation method

If the net amount is 10.00, then DUTY 1 is 1.00 (10.00 × 10%) and DUTY 2 = 2.00 (10.00 × 20%). The amounts would be as follows: Gross amount: Net amount + DUTY 1 amount + DUTY 2 amount (10.00 + 1.00 + 2.00) = 13.00. SALESTAX = 13.00 × 25% = 3.25. Total DUTIES and SALESTAX: 1.00 + 2.00 + 3.25 = 6.25. Total amount: 10.00 + 6.25 = 16.25.

Note

Only one tax code where Origin = Percentage of gross amount can be used for a transaction. Otherwise, you'll receive an error message that states that the sales tax can't be calculated.

Percentage of sales tax

When you select Percentage of sales tax in the Origin field, sales tax is calculated as a percentage of the sales tax that's selected in the Sales tax on sales tax field. The sales tax that's selected in the Sales tax on sales tax field is calculated first. The second sales tax is then calculated based on the first sales tax amount.

Example

Given the following sales tax codes:

  • DUTY 1 = 10%, using the Percentage of net amount method.
  • DUTY 2 = 20%, using the Percentage of sales tax method, with Duty 1 in the Sales tax on sales tax field.
  • SALESTAX = 25%, using the Percentage of gross amount method.

Net amount: 10.00. DUTY 1: 10.00 × 10% = 1.00. DUTY 2: 1.00 × 20% = 0.20. Gross amount: 10.00 + 1.00 + 0.20 = 11.20. SALESTAX: 11.20 × 25% = 2.80. Total DUTIES and SALESTAX: 1.00 + 0.20 + 2.80 = 4.00. Total amount: 10.00 + 4.00 = 14.00.

Note

Multilevel tax-on-tax calculations aren't possible. A tax can't be calculated based on a tax that's already calculated based on another tax. Multiple single-level tax-on-tax codes can be calculated on a transaction.

Amount per unit

When you select Amount per unit in the Origin field, sales tax is calculated as a fixed amount per unit, multiplied by the quantity that's entered on the document line. A unit must be selected in the Unit field. The amount per unit is specified on the Sales tax code values page.

Example

The sales tax code is set up as USD 1.20 per unit = box on a sales invoice line. Twenty-five boxes of an item are sold, and the sales tax is calculated as 25 × 1.20 = 30.00.

Note

If the transaction is entered in a unit other than the unit that's specified on the sales tax code, the unit is automatically converted based on the unit conversions that are set up on the Unit conversions page.

Amount per unit, additional option

On the Calculation tab, you can select whether an amount per unit calculated tax is calculated before other tax codes and added to the net amount before other tax codes where Origin = Percentage of net amount are calculated.

Examples

Assume two tax codes are calculated on a transaction:

  • DUTY: Origin = Amount per unit and a sales tax, the value is set to 5.00 per unit = pcs
  • SALESTAX: Origin = as shown in the examples below, the value is set to 25%

One piece of an item is sold at a unit price of 10.00.

Example 1

SALESTAX: Origin = Percentage of gross amount method. The Calculate before sales tax option has no effect, because SALESTAX is calculated as a percentage of the gross amount. DUTY: 1 × 5.00 = 5.00. Gross amount: 10.00 + 5.00 = 15.00. SALESTAX: 15.00 × 25% = 3.75. Total sales tax: 5.00 + 3.75 = 8.75. Total amount: 10.00 + 8.75 = 18.75.

Example 2

SALESTAX: Origin = Percentage of net amount. The Calculate before sales tax option isn't selected for the DUTY calculation. Net amount: 10.00. DUTY: 1 × 5.00 = 5.00. SALESTAX: 10.00 × 25% = 2.50. Total sales tax: 5.00 + 2.50 = 7.50. Total amount: 10.00 + 7.50 = 17.50.

Example 3

SALESTAX: Origin = Percentage of net amount. The Calculate before sales tax option is selected for the DUTY calculation. Net amount: 10.00. DUTY: 1 × 5.00 = 5.00. SALESTAX: (10.00 + 5.00) × 25% = 3.75. Total sales tax: 5.00 + 3.75 = 8.75. Total amount: 10.00 + 8.75 = 18.75.

Example 4

The results of example 3 and example 1 are the same, because there's only one duty. Assume that you have two duties, and only one of them is included in the net amount for the sales tax calculation: DUTY 1: 5.00, using the Amount per unit method, and the Calculate before sales tax option is selected. DUTY 2: 2.50, using the Amount per unit method, and the Calculate before sales tax option isn't selected. Sales tax: 25%, using the Percentage of net amount method. Net amount: 10.00. DUTY 1: 1 × 5.00 = 5.00. DUTY 2: 1 × 2.50 = 2.50. Net amount subject to sales tax: 10.00 + 5.00 = 15.00. SALESTAX: 15.00 × 25% = 3.75. Total sales taxes, including duties: 5.00 + 2.50 + 3.75 = 11.25. Total amount: 10.00 + 11.25 = 21.25. The 25% SALESTAX is calculated for the sum of the net amount (10.00) + DUTY 1 (5.00) = 15.00. DUTY 2 is added to the tax amount after the sales tax is calculated.

Calculated percentage of net amount

The Calculated percentage of net amount handles tax calculation differently, depending on the setting of the Amounts include sales tax parameter for the document or journal.

Example 1

Document/journal is set to Amounts include sales tax = Yes. Transaction line amount: 10.00. Tax rate: 25%. Sales tax: Transaction line amount × tax rate (10.00 × 25%) = 2.50. Tax base amount (origin amount): Transaction line amount – Sales tax (10.00 – 2.50) = 7.50.

Example 2

Document/journal is set to Amounts include sales tax = No. Transaction line amount: 10.00. Tax rate: 25%. Sales tax: (Transaction line amount × tax rate) ÷ (100 – tax rate) (10.00 × 25%) ÷ (100% – 25%) = 3.33. Tax base amount (origin amount): Transaction line amount = 10.00.

Percentage of margin

The Percentage of margin calculation method is introduced by the tax calculation service and is effective only in the tax calculation service. The sales tax is calculated as a percentage of the difference between the sales price and the return cost price.

Example

The tax rate is 20%. The invoice line shows a quantity of two items at 329.00 each. The return cost price of each item is 318.00. Net amount: (2 × 329.00) = 658.00. Sales tax: (658.00 – [2 × 318.00]) × 20% = 4.40.

Additional resources

Sales tax rates based on the Marginal base and Calculation methods

Whole amount and Interval calculation options for sales tax codes