Reverse-Calculated Taxes
Sometimes, item amounts already include tax. For transaction documents and reporting, you must reverse-calculate the tax from the item amount.
The system reverse-calculates tax from the line item price on sales and the item cost on purchases. On sales transactions, it reverse-calculates the taxable base by subtracting the tax amount from the total amount on the line/trailer.
GTM supports two kinds of reverse calculations, as specified by the tax method in the tax rate.
Example: For tax method 01, the calculation works as follows:
Tax Amount = Tax Rate * (Item Price/(1 + Tax Rate))
0.10 * (100.00/1.10)
0.10 * 90.90 = 9.09
Tax Base = Item Price – Tax Amount
100.00 – 9.09 = 90.91
In contrast, for tax method 11 (regressive taxation), the calculation is as follows:
Tax Amount = Item Price * Tax Rate
100.00 * 0.10 = 10.00
Tax Base = Item Price – Tax Amount
100.00 – 10.00 = 90.00
To set up a reverse-calculated tax, do the following:
• On the Address Info tab in Business Relation Create, set Tax is Included to Yes. The tax included status for the customer/supplier ship-to address determines the default tax included status on transactions. The transaction tax included status becomes the default status for line items.
• In Tax Rate Maintenance, set Allow Tax Included to Yes for all tax rates applied to items that already include tax. In addition, specify Tax Method 01 or 11.
Tax is reverse-calculated only for transactions in which the transaction or item Tax In status is Yes and the tax rate Allow Tax Included status is Yes.
Note: The ability to reverse-calculate taxes in GTM does not affect sales commission reporting using sales analysis programs. Commissions are always based on item prices inclusive of tax. For items that include tax, you may have to adjust your commission structure.