Tax Rules can be used to create multi-tier tax schemas.
For example in Australia if you make wine, import wine into Australia or sell it by wholesale, you'll generally have to account for wine equalisation tax (WET).
"Jane has a winemaking business. She sells wine to a bottle shop for $120 a dozen before tax"
This is how Jane will need to set up her tax rule to calculate WET correctly on her Invoices:
Settings > Reference Books > Financials > Taxation Rules
1. Click the Tax rule button
2. Fill in all required information regarding the Tax Rule.
Have 2 different liability accounts to map GST & WET separately.
3. The GST will be a compound tax rate in this case, meaning it will be applied on the subtotal of the before tax amount.
4. When creating a new sale invoice make sure you use the newly created (WET) tax rule.
This is shown in the image below:
Calculation breakdown is as follows:
|1 dozen wine
Plus WET @ 29%
($120.00 × (29÷100))
Plus GST @ 10%
($154.80 × (10÷100))
Total selling price
5. The image of the General Ledger Report below shows the tax components posted to the accounts specified during setup of the tax rule.
6. The breakdown for multi-tax components can also be shown on the invoice.