Example tax calculations
Use the Tax notebook to calculate the tax that you charge.
When you set up taxes with the Tax notebook, keep the following points in mind:
- Before you set up taxes, contact your taxation agency for specific tax regulations.
- A tax category that is called default is automatically created and has a value of 0%. If you do not apply tax to a product, do not change this value. For example, if your jurisdiction does not charge tax for certain products, or if you pay the equivalent in tax for promotional reasons, leave this value as zero. Otherwise, if you commonly apply one tax category to many of your products, or if your business charges one kind of tax only, change the value of this tax category from zero to an appropriate tax value.
- A tax category that is called shipping is automatically created and has a value of 0%. Do not change this value if you do not charge shipping tax on the products you deliver. Otherwise, change the value of this tax category from zero to an appropriate value. In this example, for simplicity, the clothing store does not charge tax on shipping.
Example: Department store
The following tax calculations are based on sample scenarios for a fictional online department store that is located in Ontario, Canada. All examples are hypothetical.
Although this department store is located in Ontario, Canada, the store has customers from other jurisdictions, indicated as All jurisdictions within Canada, where taxation laws might differ. The following table outlines sample jurisdictions, the store's tax categories, and the tax rates in percentage:
| Jurisdictions | default | shipping | Federal tax | State tax |
|---|---|---|---|---|
| CANADA, Ontario | 0.00 | 0.00 | 7.00 | 8.00 |
| CANADA, Alberta | 0.00 | 0.00 | 7.00 | 0.00 |
| CANADA, All | 0.00 | 0.00 | 7.00 | 7.00 |
| UNITED STATES, California | 0.00 | 0.00 | 6.00 | 8.00 |
| UNITED STATES, All | 0.00 | 0.00 | 6.00 | 7.00 |
Not all taxes apply for every product. For example, the federal and state tax does not apply to groceries, but they apply to clothing items. As a result, the department store uses tax codes to group taxes together that apply to a particular product. The following table illustrates the tax codes
| Tax codes | default | shipping | Federal tax | State tax |
|---|---|---|---|---|
| groceries | yes | yes | no | no |
| clothing | yes | yes | yes | yes |
Example 1
A customer from Ontario, Canada orders two pairs of women's jeans. Jeans fall under the tax code clothing, which is composed of the default, shipping, federal, and state taxes. In the jurisdiction CANADA, Ontario, the values for these taxes are 0.00, except for federal tax, which is 7 percent, and state tax, which is 8 percent. As a result the total tax charge is $21.00: ($70.00 per pair of jeans * 7% federal tax * 2 pairs of jeans) + ($70.00 per pair of jeans * 8% state tax * 2 pair of jeans) = $21.00.
Example 2
A customer from California, United States orders 3 crates of wild blueberries. Wild blueberries fall under the tax code groceries, which is composed of the default and shipping taxes. In the jurisdiction UNITED STATES, CALIFORNIA, the values for the default and shipping taxes is 0.00. As a result there is no tax charge for the wild blueberries.