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How is sales tax calculated for a discounted sale?

When you create a discount item, the way you set it up affects how your sales tax is calculated when you apply the discount to a sale.

Dollar amount vs. percentage

You can set the amount of the discount to be a specific dollar amount or to be a percentage of the sale.

  • If the discount is for a specific dollar amount, sales tax might be less than you expect because the discount gets distributed proportionally over all the line items appearing above it.

  • If the discount is a percentage of the sale, the sales tax applies only to the line item directly above the discount line item. If the discount applies to more than one item, you'll need to add a subtotal item before your discount item.

Taxable vs. non-taxable

You can set the discount item to be taxable or non-taxable.

  • If the discount is taxable, the discount is applied to the taxable line items before the sales tax is calculated. This reduces the amount of sales tax charged to the customer.

  • If the discount is non-taxable, the discount is applied to the taxable line items after the sales tax is calculated.

What if I need to use both?

There are situations where a taxable discount might be divided between taxable and non-taxable items. In this case, a portion of the discount must appear in both taxable and non-taxable sales. Here are examples of when this can happen:

  • Dollar amount discounts

    If a taxable line item and a non-taxable line item are followed by a taxable dollar amount discount, the discount is divided proportionally between the two line items.
  • Percentage discounts

    If a taxable line item and a non-taxable line item are followed by a subtotal and then a percentage discount, the discount is divided proportionally between the two line items.
  • Non-taxable discounts

    Non-taxable discounts are always placed in the non-taxable sales column and are never split between line items. To calculate the discount amounts:
    1. Add up everything above the discount on the sales form (excluding the discount).

    2. Add up the taxable amount above the discount on the sales form (excluding the discount).

    3. Divide the taxable amount by the whole amount. This is the % taxable.

    4. Multiply the % taxable amount by the discount. This is the taxable amount of the discount.

    5. Subtract the taxable amount of the discount from the total discount to get the non-taxable amount of the discount.

See also

KB ID# H_SALES_TAX_TS_SALES_TAX_CALCULATED_WITH_DISCOUNT
9/26/2016 1:46:06 AM
PPRDQSSWS407 9138 Pro 2017 7a7b3b