What is a compound tax?
System
Posts: 412 admin
What is a compound tax?
A compound tax, or stacked tax, is calculated on top of a primary tax.
Here's an example of how compound tax would is calculated. We're using an item that costs $100:
Item Price
$100.00
GST (...
0
Comments
So PST is the compound tax in this case?
Hi @myderrick . That's right, PST is the compound tax. Compound taxes are calculated on top of the primary tax.
So instead of putting in 5% I would add the PST and make it 11%? I'm adding a tax in WAVE, thanks
@bladerunner13 Hey there,
Yeah if these taxes are usually compounded on all of your purchases you can create a compound tax to make that 11%. If you find yourself making purchases with only one of these taxes, not compounded, you may want to create a tax that is just the 5%. Hope this helps.
Yeah it makes sense to make both of the taxes, then you're covered either way. Thanks
And how would you configure the taxes/invoices so that you charge a first tax (lodging tax), then have a first subtotal and then GST and PST are calculated on top of that subtotal (including first tax) ? GST and PST are compound on top of lodging taxe but PST is not on top of GST. Exemple:
lodging = 100$
lodging taxe (5%) = 5$
subtotal = 105$
GST (5%) = 5,25$
PST (10%) = 10,50$
Total = 120,75$
Hey @gestionFredT
This isn't possible in Wave unfortunately. The work around would be to create a new line item that is that tax (even though it would be assigned to an income account) then add your subtotal tax on top of it all.
I understand that this is not ideal for your reporting, but it should give you an accurate amount on your invoices/bills.
Take care.
Im from ontario and want to add HST on wave, I am trying to do it, its give me a error . Taxes: cannot add a compound tax by itself.
Hey @Krishan . Compound taxes can only be added on top of other taxes, thus the name compound tax. If you try to apply this after adding another tax, you should be able to add it.
This is wages and in Australia the amount I am being charged is 0% due to being wiithin the free tax threshold.
Hey @karenbusiness . Would you mind providing some more information around your exact question? Let us know!
But it won't let me
Hey @mudslinger! Can you let me know what you're seeing when you try to change that rate? Are there any error messages that appear when you attempt to do so?
any way I can delete the compound tax, I have ticked it by mistake
Hi @Sadie . You cannot change the type of tax after the tax has been created. To remedy this, create a new tax without the compound tax option ticked.
how can i keep tract of state sale tax 6% plus 1%school tax in every county we work in. Every quarter I have to send in 6% plus a break down of the 1% school tax for 13 counties?
Murf
Hey @Murf , I'd have to have a better idea of exactly how you're handling this. I'd think you'd want to create a standard 6% Sales Tax that you add to everything, and then additional different 1% taxes for each country that you add as necessary. To be sure though, I would ask a CPA or accountant so they can point you in the right direction due to possible complex jurisdictional tax laws.
Similar to the recoverable vs. non-recoverable taxes, it would be great if we could have access to a table or at least resources to find out when and where we may be subject to these "compound" taxes. If we knew we needed an accountant, we probably wouldn't be using Wave, for us non-financial entrepreneurs!
Hello!
I'm writing from California (USA). We have a state + local tax. Since we have to collect both, per transaction, would this be considered a compound tax? Eg: an item costs $100, and our local tax is 2%, plus our state tax is 7.25% = a 9.25% tax (so we collect $9.25 taxes - I'm guessing non recoverable as this money isn't ours, it gets paid to the city or state.
Would it be compounded or set up separately? Because we file taxes separately (eg, local is paid locally, state is paid state) I'm not sure what this would be set up as. Thanks so much for your help!
Hi @CassandraA5 , welcome to the Community! I'm afraid that this question can't be answered by us here in the Community admin team, as this is a region-specific tax question, and we're not accountants. So, I must recommend that you reach out to an accountant to confirm what type of tax this is and what to set it up as in terms of recoverable/non-recoverable. Once you know that, if you need help with how to set up the knowledge, we're happy to help!
I'm in Tennessee and sell large-ticket items. We have a 7% sales tax that applies to the entire amount. In my county, there is a 2.25% tax applied to the first $1600 of a single item. Next, there is an additional 2.75% state tax on the next $1600. After $3200, there is only the base 7%. How should I create appropriate tax accounts?
Oh wow, this is perhaps one of the worst examples that I have seen posted on here, seeing as how there is no context whatsoever in regards to these examples. For example there is no reference to what PST and GST are. To my friends at Wave as well as to @CallieP, I would like to offer some friendly and constructive criticism, as well as provide some clarification to @CassandraA5 and @Five_Star_Structures, that Wave is NOT a United States based company. Since Wave is an internationally utilized online software (of which I love!!) if you are going to give examples in your post of taxes, like PST and GST, I would advise that you keep in mind that your clientele reaching out to you for assistance are referring to issues specifically referencing their questions regarding U.S. State and Local matters. @CallieP, your recent post stating that it was a “region specific” example, was a great response, however it was very ambiguous and potentially confusing for other users. It is only because I am a frequent visitor of family and friends across the great nation of Canada that PST and GST are in reference to taxes specifically located with the various Canadian provinces. PST is referring to the “Provincial Sales Tax” and the GST is in reference to the “Goods & Services Tax.” In British Colombia and Saskatchewan you will notice that they collect a “PST”. I’m Manitoba their provincial tax is referenced as “RST” or “Retail Sales Tax” and in Quebec, their version of PST is referenced as “QST” aka “Quebec Sales Tax”. The GST is a set 5% rate collected in every province of Canada however, in some provinces (Ontario, Nova Scotia, PEI, Newfoundland & Labrador and New Brunswick) their businesses collect only one tax which is the “HST” or otherwise known as the “Harmonized Sales Tax” which includes both the Provincial Sales Tax and the GST combined and businesses in those provinces only need to collect one tax instead of two. I hope that clarifies the region specific nature of this example.
@CassandraA5 and @Five_Star_Structures i will address your questions in separate posts.
I hoped this clarified some information for people and to my friends at Wave, I just wanted you all to be cognizant of your customer demographic and to help them accordingly! Thank you for all that you do!
Best,
Corey
@Five_Star_Structures
Hey there! I hope all is well with you!! So yes, your tax situation is a bit of a complicated one, however I think I might be able to help. I used to have a client in Davidson County, Tennessee and out of all of the various states and local counties I have had to deal with, the State of Tennessee has BY FAR one of the most complicated tax structures out of any other state in the nation… right up there next to California and New York City and Indian Tribal Nations, in terms of complexity.
So if I am not mistaken, you are referring to Tennessee’s “Single Article Tax.” This tax only applies to certain items which i am not going to dive in to because you should know what sales tax is associated to what items being sold. However if this IS in regards to the Single Article Tax, then I will explain how to calculate it because the way you are calculating it, could get messy. I will also attach a link from the Tennessee Dept of Revenue on Sales Tax collection that may hopefully help.
So in Tennessee there is the set state sales tax of 7% and then per state statute, each county can charge a local sales tax of no more than 2.75%. Now, similar to my former client who was in Davidson County, you have a 2.25% local sales tax which is what you stated in your post. Now, these taxes are not compounded on top of each other. So you don’t have to worry about calculating out compounded tax amounts. However on items over $3200 you should break the tax collection in to 3 separate tax categories (and this may get tricky with implementing in Wave, but you may have to do this using a professional tax preparer like me or using a different professional software because this can be confusing but I hope I can simply it a little)
But let’s say that you sell an item for $10,000. First of all, you will charge 7% of the entire $10,000 in state sales tax which is $700. This is your first out of 3 categories.
Your second one is based off of your local sales tax of 2.25% which is ONLY applicable to the first $1,600 of the sale amount. Back in 2002 the state of Tennessee instituted the Single Article Tax and part of that statute says that the locality can only tax the first $1600. So in our example here, you would take $1600 and tax it by 2.25% which is $36 and that is how much you owe in local taxes.
Lastly comes the States additional (but not compounded) “Single Article Tax” of 2.75%. This is still reported to the state however when it’s reported to the TNDOR, it needs to be reported as the portion designated to single article sales tax. And this 2.75% tax is only applicable to any sale amount that is $1600.01 up to and including $3,200. So in our example it is $1,600 (aka the second half of the first $3,200) and multiply it by 2.75, which is equal to $44.
After the first $3,200, there is no local sales tax or additional state sales taxes and nothing left to calculate because in step 1 we calculated the 7% state sales tax in step 2 we got the local and step 3 we got the single article portion. So we just add all three amounts to get $700+36+44=$780 in sales tax charged to your customer. So if you think about it, if your sale is over $3,200 then your local tax will always be 36 and your Single Article is always going to be $44. The only amount that changes is the amount subject to the 7%. So when inputting it in to Wave, you could have set tax amounts applied for local and Single Article Sales Tax at those set amounts but the only changing variable would be the amount subject to the 7% sales tax.
I hope that helped explain this for you. If not, then I still liked talking and typing about taxes! I may be one of the few people out there that does enjoy talking about it 😂🤣. Let me know if you have any questions or if I can help in any way further. If I didn’t help you out, then I apologize, but still feel free to reach out if you need any other help.
Here is a link to the Tennessee Sales Tax collection guide that I mentioned above: https://www.tn.gov/content/dam/tn/revenue/documents/taxguides/salesanduse.pdf
Best,
Corey
@CassandraA5
Hi there! In your case, you assumed correctly in that they are not compounded taxes because the state amount and the local amount are both based off of the same principle sale amount. For example on a $100 sale your local tax would be $2 and your state amount would be $7.25. Your local tax of 2% and state amount of 7.25% are both calculated off of the sale amount of $100. However you mentioned your tax being non recoverable. I can tell you that I am almost certain that the sales tax is recoverable. I would double check with the State of California on this. You may need to get a “reseller certificate” depending on what your business is or you may have to file the tax and in the return apply for a credit in sales tax. However the one thing I do know is that California Sales Tax laws are perhaps the MOST complex and also stringent laws in the country. He is a link for info regarding CA Use Tax from the States website, however, if you are not completely well versed in sales tax law in CA then I would find an accountant or tax professional that is because California is very harsh with its fines and penalties and they do NOT mess around and when it comes to collecting their tax money, California is very much on top of the ball. Lolol.
I hope I could help, even just a little.
Take Care,
Corey
@CassandraA5
Sorry I forgot to give that link to CA’s Use Tax site. Here it is: https://www.cdtfa.ca.gov/formspubs/pub110/#paying