Rounding logic
Learn about how Global Tax Determination rounds tax amounts.
Different states require different methods of rounding tax amounts, which can result in a few cents of difference on the line item level. Global Tax Determination will use the correct method for the taxing jurisdiction where the transaction takes place. If there are any discrepancies, it will adjust the line items to add up to the correct total amount.
Rounding methods
- Document-level rounding
Some states require you to add up the individual line item amounts and round the total. This is also called invoice-level rounding. In this case, Global Tax Determination works backward from the total tax amount to calculate the tax amounts on the individual line item levels.
- Line-level rounding
- Other states require you to round each line individually and then add them up.
These two methods don't always match and can lead to a difference of a few cents. Let's look at an example from Massachusetts, where document-level rounding is the rule. Here, the line items are added up first, and the total amount is rounded, which comes to $212.30.
| Gross amount | Tax rate | Unrounded tax amount | Rounded tax amount |
|---|---|---|---|
| 145.84 | 6.25% | 9.115 | |
| 2278.69 | 6.25% | 142.418125 | |
| 972.44 | 6.25% | 60.765 | |
| Total | 212.298125 | 212.30 |
If you round each line item first and then add them up, the total rounded amount will be one cent more than in the previous example.
| Gross amount | Tax rate | Unrounded tax amount | Rounded tax amount |
|---|---|---|---|
| 145.84 | 6.25% | 9.115 | 9.12 |
| 2278.69 | 6.25% | 142.418125 | 142.42 |
| 972.44 | 6.25% | 60.765 | 60.77 |
| Total | 212.31 |
These amounts were rounded using the standard 5/4 rule, where the amount is increased by 0.01 when the third digit after the decimal is five or more, because US currency only extends to two decimal places. Most US jurisdictions use this rule.
To make sure that the rounded tax amounts on the line item level add up to $212.30, Global Tax Determination uses the truncation method. If an amount has more than two decimals (e.g. 9.115), Global Tax Determination cuts off everything after the second decimal:
| Unrounded tax amount | Truncated tax amount |
|---|---|
| 9.115 | 9.11 |
| 142.418125 | 142.41 |
| 60.765 | 60.76 |
| Total | 212.28 |
The total truncated tax amount (212.28) is less than the document-level rounded tax amount (212.30). So, Global Tax Determination will find the difference between the two:
212.30 - 212.28 = 0.02
Now we need to add those two cents back into the total so that the sum reaches 212.30. The two cent difference is split among the lines that have the highest remainder to the right of the truncated values. One cent is added to the second line because 141.41 was originally 141.418125. That is the highest remainder. The other one cent could be added to either line one or three because the remainder is the same. In this case, if the taxes are at the same tax level, it will be added to the first line.
| Truncated tax amount | Extra amount | Total rounded amount |
|---|---|---|
| 9.11(5) | 0.01 | 9.12 |
| 142.41(8125) | 0.01 | 142.42 |
| 60.76(5) | 60.76 | |
| Total | 212.30 |
The result is the correct total document-level tax amount: $212.30.