Compound Tax (often refereed to as Stacked Tax or Tan-On-Tax) is a tax calculation where the total cost of the product or service is taxed at one rate, and then the total of that amount, including the first tax amount, is taxed a second time. In Quebec and Prince Edward Island (PEI) in Canada, the General Sales tax is calculated and added to the price of the product. Then the Quebec or PEI Provincial Tax rate is calculated for that total amount, which is added to the previous total.
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Below is an example of a compound (stacked) tax calculation using Quebec Canada Tax Rates where the QST is stacked on top of the GST. Product = $100 GST = 5% QST = 9.975%
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Step-by-step guide
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The first assumption in configuring Compound (Stacked) Tax is that you will must have at least 2 Taxes assigned to the Tax Category. Most Compound (Stacked) Tax scenarios involve only 2 Taxes however you could technically stack as many Taxes on top of each other as required. In the Calculation Example above we used Quebec Canada Tax Rates to illustrate the calculation. Below we will show you how to configure the Quebec Taxes in a Compound (Stacked) Tax scenario.
Configuring Compound (Stacked) Tax
Create the 2 Taxes that will be added the Tax Category
Info title NOTE For more information on creating Taxes please see the Taxes topic
- Create the Tax Category that will hold both Taxes created in (1) above
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