Understanding Tax Calculations for Different Countries
When it comes to selling products, it's important to understand how taxes are calculated for different countries. In this article, we will break down the tax calculations for two common tax types of
GST as implemented in the USA
Multiple taxes in Canada, and
VAT used in Europe and South Africa
GST (state and local) > USA
In countries like the USA the Goods and Services Tax (GST) is applied to products sold. The tax is not included in the product directory, so it's important to understand how it affects the selling price.
The selling price for products in these countries will appear without tax. This means that the price listed on the purchase order will not include the GST. However, state & local taxes are still factored into the overall selling price calculation at the time of sale.
Please bear this in mind when discussing or quoting clients on products and services.
The formula for calculating the selling price (without tax) is as follows:
cogs + supplier tax + markup = selling price without tax 💵
Example: $10+ $1 (10% tax) + $8.80 (80% markup) = $19.80 (without sales tax)
This means that the cost of goods sold (cogs) and the supplier tax (GST) are added together, and then the markup is applied to determine the final selling price.
In the USA, sales tax paid on purchases (input tax) is not reclaimable. It is considered part of the cost of goods
It's important to note that the supplier discount is not used in this calculation.
Only the cost of goods sold, and the supplier tax are factored into the selling price; however, the supplier tax amount is calculated based on the discounted COGS.
No Supplier Discount:
$10+ $1 (10% tax) + $8.80 (80% markup) = $19.80 (without sales tax)
With a 20% Supplier Discount:
$10+ $0.80 (10% tax) + $8.64 (80% markup) = $19.44 (without sales tax)
If your supplier is not a taxpayer, then the Supplier Tax field will be disabled with the value automated to zero.
📌Coming Soon: Selling prices across the platform will display without tax.
This includes the Product Directory and Service List.
Multiple taxes > Canada
Canada has multiple sales tax types. The amount of sales tax charged varies depending on the province or territory in which the purchase is made.
GST (Goods and Services Tax)
The Goods and Services Tax, or GST, is a federal tax that is applied to most goods and services sold in Canada. Some provinces have combined the GST with their provincial sales tax (PST) to create a harmonized sales tax (HST).
PST (Provincial Sales Tax)
The Provincial Sales Tax, or PST, is a tax that is collected by the provinces and territories in Canada. The rate of PST varies depending on the province or territory, ranging from 5% to 10%. Some provinces have combined the PST with the GST to create a harmonized sales tax (HST).
HST (Harmonized Sales Tax)
The Harmonized Sales Tax, or HST, is a combined tax that includes both the GST and PST. This tax is only applicable in certain provinces, including Ontario, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island.
QST (Quebec Sales Tax)
The Quebec Sales Tax, or QST, is a provincial tax that is collected by the province of Quebec. The current rate of QST is 9.975%.
The formula for calculating the selling price (including tax) is as follows:
cogs + markup + sales tax = selling price including tax 💵
Example: $10 + $8 (80% markup) +$1.80 (10% sales tax) = $19.80 including sale tax
This means that the cost of goods sold (cogs) and the markup are added together, and then the product tax (VAT) is applied to determine the final selling price.
It's important to note that the supplier discount is not used in this calculation.
If your supplier is not a taxpayer, then the Supplier Tax field will be disabled with the value automated to zero.
VAT > EUR, SA
In countries like Europe and South Africa, the Value Added Tax (VAT) is applied to products sold. Unlike GST, the VAT is included on the purchase order as well as the product directory, so the selling price will appear including tax.
The formula for calculating the selling price (including tax) is as follows:
cogs + markup + product tax = selling price including tax 💶
Example: 10 + 8 (80% markup) +1.80 (10% sales tax) = 19.80 including sale tax
It's important to note that the supplier discount is not used in this calculation.
Not a Taxpayer
If you are not registered to pay tax and have your Company Fiscal settings aligned, this may affect your selling price calculations.
cogs + supplier tax + markup = selling price
This is because the clinic is not charging tax, nor can the tax paid to your supply be recouped.
To ensure that your pricing reflects this the supplier tax paid must be included.
It's important to note that the supplier discount is not used in this calculation; however, the supplier tax amount is calculated based on the discounted COGS.
No Supplier Discount:
$10+ $1 (10% tax) + $8.80 (80% markup) = $19.80
With a 20% Supplier Discount:
$10+ $0.80 (10% tax) + $8.64 (80% markup) = $19.44
If your supplier is not a taxpayer, then the Supplier Tax field will be disabled with the value automated to zero.
Conclusion
Understanding how taxes are calculated for different countries is crucial for accurately pricing products and avoiding any discrepancies. By following the formulas outlined in this article, you can ensure that your selling prices are accurate and compliant with tax regulations in different countries.