Tax Included & How to Back Out Sales Tax
Inventory items can be taxable or non-taxable, but not tax inclusive. This workaround allows you to include tax in your pricing and figure out the total tax collected at a later time. If you use tax included prices, tax will not show up on customer receipts because it’s included in the price of the item.
Table of Contents
Some states and cities have multiple tax rates. For instance, drinks are taxed at 8.75% and food at 7.75%. To handle this situation we recommend the following workaround:
- Adjust the sales price of your items to include tax.
- On your receipts, add a line telling customers that tax is included.
- Move each group of items that is taxed at a different rate into its own separate department.
All your drinks that are taxed at 8.75% in a department called DRINKS.
All your food taxed at 7.75% in a department called FOOD.
- Move all non-taxable items into yet another department to keep them separate.
- Follow the steps below to back the tax out of each department's total.
Back Out Tax
Follow these steps to back the sales tax amount out of your total sales by department.
- Run a 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.
Tax rate for the FOOD department: 7.75% or .0775
Total FOOD net sales (including sales tax): $18,295
Total pre-tax sales amount = $18,295 / 1.0775 = $16,979.12
Total FOOD sales tax = $18,295 – $16,979.12 = $1,315.88