 ## R070702: Compound Tax Rates

#### Calculation

This page explains how to handle a compound tax rate: a tax on amounts that are already subject to another tax.

For example, the federal government of Canada imposes a 6% goods and services tax (GST), and the province of Quebec imposes a 7.5% tax on the amount that results after the GST has been added.

The result is that a \$100 fee gives GST of \$6 and QST of \$7.95 (which is 7.5% of \$106).

Now for a little algebra:
If the amount due is X, then the amount due plus GST is 1.06X. Then QST is (0.075)(1.06X) = 0.0795X.

In other words, QST is 7.95% of the amount due before taxes.

So to calculate the tax on \$100, we can use 6% for GST and 7.95% for QST, applying each rate to the \$100 fee. That is how RTG Bills will do the calculation.

#### Implementation

First, create a tax code, such as QUEB for Quebec:

Edit > Tax Codes > New

At the Edit A Tax Code window, click Edit Rates and create two tax rates:

Rate 1, GST, 6.00%
Rate 2, QST, 7.95%

Finally, add the two tax rates to the tax code, using the Add button on the Edit A Tax Code window.

Note:
There was a roundoff error in RTG Bills that could cause the calculated tax to be off by \$0.01. This error affected both taxes and late charges. The problem was fixed in RTG Bills V2.18.