How are taxes calculated on POS / Orders / Invoices?
Why does it look like I am off by a penny?
On each order the tax is calculated per line item (every line on the invoice has its own tax calculation and then those calculations are summed to get a grand tax total for the order). There is also banker's round that is part of our equation. Basically what that does is alternately round the total up or down based on the ending digit after the tax is calculated. For example, if your tax rate is 8.25% that becomes 0.0825 in our tax calculations. If that was to be rounded up each time you would be consistently charging the customer a half a penny more per line item. With the banker's round line items are alternately rounded up or down.
Using a $50.00 sale at 8.25% (0.0825%), the tax would be calculated at $4.125 and many would expect this to round to $4.13. But, that would consistently charge the customer 1¢ more per line item. Instead, with the banker's round the tax is rounded up for one line item and rounded down for another. At the end of an order with multiple line items the tax will average out so the customer is charged the right amount.
Try It Out!
You can try this by adding a test product for $50.00 with a test tax rate of 8.25% and adding it to the point of sale screen. The first item you add will make your tax total $4.12 because the calculated tax of $4.125 was rounded down. When you add a second item that your tax will now be $8.25 instead of $8.24 because the calculated tax of $4.125 was rounded up this time to $4.13. If you add two more items your tax will now be $16.50 because for one of those items the tax was rounded down to $4.12 and one item was rounded up to $4.13.
If you look at the order subtotal of $200 and calculate your tax rate manually you will get $16.50 which is the same as what your point of sale screen calculated.
Something to Consider
Use/Previously Paid Sales Tax
Many state tax codes allow a reduction in the amount of use tax due when the present owner or user has
previously paid a legally imposed sales or use tax on the transaction or item to another municipality. The reductions vary by state so please check your local guidelines. Sales and use taxes are transactional and are therefore imposed upon each taxable transaction. In other words, the same item may be subject to sales or use tax multiple times.