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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.

 The phrases [Compound Tax] and [Staked Tax] are used interchangeably throughout this document. 

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

1. Create the 2 Taxes that will be added the Tax Category

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   title NOTE
   For more information on creating Taxes please see the Taxes topic

   
   

2. Create the Tax Category that will hold both Taxes created in (1) above and add both Taxes to the Tax Category

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   title NOTE
   For more information on creating a Tax Category please see the Tax Category topic

   
   

3. The Tax Category - Taxes module should now look very similar to below, with both Taxes having a Stacked Order Index of 0.
   Image Added

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   icon false title Stacked Order Index
   The Stacked Order Index determines the sequence in which the multiple Taxes are calculated. A Stack Order Index of 0 indicates that the Tax will be calculated first and as a standard Tax. If all Taxes have a Stacked Order Index of 0 then they are all treated with the same priority and are all calculated as a Standard Tax.  If Tax A has a priority of 0 and Tax B has a priority of 1 as follows: Tax Stacked Order Index Order Tax A 0 calculated 1st - (price x Tax A) Tax B 1 calculated 2nd - (price x Tax A) x Tax B Tax A will be calculated first, then Tax B will be calculated as a Stacked Tax on the result.

   
   

4. Set the Stacked Order of the tax you would like to be calculated last to 1 by clicking the Image Addedbutton next to the Stacked Order Index. 
   Clicking theImage Added button immediately saves the stacked Order Index changes. The Taxes in your Tax Category should now look as follows:
   Image Added
5. You can now assign the Tax Category to as many customers as you need to. The Taxes will be calculated as demonstrated in the Calculation Example at the top of this page.
   
   
   

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