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Tax Rounding Documentation

How does G1 calculate taxes?

  • As of January 28, 2020, G1 calculates taxes at the item level. Previously, it calculated taxes based on the sum total of taxable items. What does this mean?
    • The amount of tax to collect is calculated for each individual item
    • If multiple of the same item are added, the tax collected for the item increases at the same value for each item
      • IE: $0.93 item added to cart, 7% tax applied ($0.07) equals a final value of $1.00
      • If a second item at $0.93 is added to the cart, the same $0.07 is also added making the final value $2.00
    • Previously if two items at $0.93 were added to the cart, that would equal $1.86. When the same 7% tax is applied, $0.13 should be collected totaling only $1.99

This change allows a more consistent value of tax to be collected when the same item is sold multiple times on the same order

Was G1 calculating incorrectly before, is it correct now?

  • The short answer is “yes and no” to both questions
    • Each state, county, and municipality have their own tax rates, and use various rounding methods or tables to determine how much tax to collect
      • It is estimated there are over 11,000 tax collection entities in the US (thebalancesmb.com)
    • For example; Orange County, FL has a table listing every monetary value broken out into ranges and how much tax should be collected based on which range the value falls in
      • IE: items under $0.06 would collect no tax. Items $0.07-$1.04 would collect $0.01 and so on for greater values
      • As you get into the larger values, you’ll notice certain ranges where it doesn’t follow the same rounding pattern as others ranges and thus why there is a table
    • Other areas will always round up no matter what the calculated value is
      • IE: $0.151 calculated tax results in a value of $0.16 being collected
    • In other areas they follow traditional rounding and round up at 5
      • Using the previous example $0.151 results in $0.15 being collected and $0.155 results in $0.16 being collected
    • Because of these variables there is no one correct way to collect tax

What should I do as a business owner?

  • Consult with a tax professional in your area to better understand your local tax rates and policies
  • Ultimately the amount of tax owed is calculated on total taxable sales during the tax period (typically quarterly or monthly)

Ensure tax rates are kept up to date in G1 to collect the proper amount and keep reports accurate

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