Different Type of Sales Tax

There is more than one way to charge sales tax on a product. Therefore we provide you with three types of sales tax. In this article, you will learn the three types of sales tax and when you should use each of them. When you add a sales tax, you could see the section that asks you to pick a sales tax type:

Flat

This is the simplest type of sales tax. The tax rate would be applied to the full amount of a product, unlike the other two types, disregarding the price of the product. For instance, if you assign a 10% flat tax to the department "Dresses". Every time when a product in this department is checked out, a 10% tax will be applied.

Luxury Tax on Full Amount

A tax will be charged only if the price of a product crosses above a certain price point. If the price of a product is above a price point, the tax will be calculated on the full amount of the product instead of the portion above the price point. For instance, we create a sales tax with this type with the threshold of $100 and the tax rate of 50%. if we assign this sales tax to a product, and the product is checked out, since the product price is over $100 (the threshold), the product will be charged a 50% tax on the full amount. The tax should be $100 ($200 x 50%) in this case.

Notice that if the price is below the threshold, there will be no tax charged. For instance, if this product is priced at $100, the tax will be 0.

Luxury Tax on Partial Amount

This type of tax is very similar to the last one. However, the tax is no longer calculated on the full amount but the amount exceeds the threshold. For instance, the product "071006" is assigned to this tax type with $100 threshold and 50% tax rate. If it is checked out, only $100 out of $200 total price would be taxed. In this case, the tax should be $50 (($200 - $100) x 50%). 

 

Notice that if the price is below the threshold, there will be no tax charged. For instance, if this product is priced at $100, the tax will be 0.