Tax Included & How to Back Out Sales Tax
This article describes a workaround for including tax in the prices of inventory items. Because items can only be taxable or non-taxable, the business must manually figure out later the total amount of tax collected.
IMPORTANT: If you follow this guide, tax will not show up on customer receipts or in BackOffice reporting because it will be included in each item’s sales price. Be aware that tax laws can change at any time and you should contact a tax professional for specific tax advice regarding your business.
Table of Contents
Include Tax in Pricing
Because inventory items cannot be set as tax-inclusive, we recommend the following workaround to include tax in item pricing.
- Adjust the sales price and taxable status of items.
Update each item’s price to include tax.
Make these items non-taxable.
- Move each group of items taxed at a different rate into its own separate department.
Drinks taxed at 8.75% in a “DRINKS” department and food taxed at 7.75% in a “FOOD” department.
- Move all untaxed items into yet another department to keep them separate.
- On the business's receipt, add a line telling customers that tax is included in pricing.
- Follow the steps below to back the tax out of each department's total sales.
Back Out Tax Amount
Follow these steps to back the sales tax amount out of the total sales for each department.
- Run the Sales by Department report.
- To get the pre-tax sales amount, divide each department's net sales by 1 plus that department's tax rate.Example:
- Tax rate for the FOOD department: 7.75% or .0775
- Total FOOD net sales (includes sales tax): $18,295
- Total pre-tax sales amount = $18,295 / 1.0775 = $16,979.12
- To get the sales tax amount, subtract the pre-tax sales amount from the department's net sales.Example:
- Total FOOD sales tax = $18,295 – $16,979.12 = $1,315.88