Tax-on-Tax
In a tax-on-tax situation, one tax amount is included in the calculation for another tax amount. For example, in some Canadian provinces, Provincial Services Tax (PST) is based on the item amount plus the federal Goods and Services Tax (GST).
To set up a tax-on-tax, define the calculation priority of the two taxes and assign the included tax as the tax base of the other tax.
1 In Tax Environment Maintenance (29.3.1), assign both tax types to the tax environment. Assign the included tax type a lower sequence number than the other tax type. This ensures that the included tax is calculated first. In the Canadian example, GST has a lower sequence.
2 In Tax Base Maintenance (29.1.13), define a tax base and assign it to the included tax type. In the Canadian example, GST is the included type.
3 In Tax Rate Maintenance (29.4.1), set up tax rates for both tax types. In the rate for the tax-on-tax, specify the tax base for the included tax. In the Canadian example, you would set up rates for both GST and PST, then specify the tax base in the PST rates.