Tax calculation types
Learn about the six tax calculation types and how they are used in Tax Determination transactions.
Type 1 (standard forward calculation)
This is the most common calculation type for real-time tax determination. The gross amount is passed to Tax Determination, where it will be multiplied by the tax rate to calculate the tax.
Type 2 (tax-inclusive amount back calculation)
This calculation type is typically used for transactions where the tax amount is included with the gross amount, such as vending machine purchases. The tax engine will take the single amount and break it down into the gross amount and total tax, and then determine how that total tax should be distributed at the state, county, city, and district levels.
This calculation type does not take into account special rules, such as thresholds or exemptions. To apply special rules, use type 4.
Type 3 (forward calculation vending)
This calculation type is an alternative way to calculate tax on vending machine transactions and is rarely used. You can use this type if the amount you pass into Tax Determination does not already contain the tax amount.
Type 4 (tax-inclusive amount back calculation with taxable amount adjustments)
This is an advanced version of type 2. Like type 2, the tax engine will take the single amount you pass and break it down into the gross amount and total tax, and then determine how that total tax should be distributed at the state, county, city, and district levels.
Unlike type 2, this calculation type takes special rules, such as thresholds and exemptions, into consideration.
Type 5 (tax to gross back calculation)
This calculation type is mainly used by businesses that only share their data with Tax Determination for filing purposes, as tax calculation has already been performed by a third party.
In this case, you provide the total tax you collected in an invoice and the tax engine will back-calculate the gross amount and how much tax needs to be remitted on the state, county, city, and district levels. You can also pass the gross amount along with the tax amount, but it is not required. If Tax Determination finds that the tax rate on an invoice is incorrect, it will modify the gross amount, but it will never modify the tax amount.
Type 6 (tax to gross back calculation)
In this case, you provide the tax amount, and Tax Determination will back-calculate the accurate gross amount and how much tax needs to be remitted on the state, county, city, and district levels.