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Setting up Single and Combined Tax Rates
Setting up Single and Combined Tax Rates
Erin Jamison avatar
Written by Erin Jamison
Updated over a week ago

Tax Rates

Your account will have a set of base tax rates (core rates) applied based on the country of your account:

Australia

New Zealand

UK

Canada

Other (e.g. US)

GST 10% (Default)

GST 15% (Default)

Standard VAT 20% (Default)

GST 5% (Default)

Tax Exempt 0%

GST Exempt 0%

GST Exempt 0%

VAT Exempt 0%

Exempt 0%

No Tax Set (Fallback rate)

Zero Rated (Fallback rate)

Zero Rated (Fallback rate)

Zero Rated (Fallback rate)

No Tax Set (Fallback rate)

Note:

  • The fallback rate is the rate that will be applied if there is no default set (manually changed)

  • For the US, there are many tax rate combinations (e.g. state and county).

  • For Canada, there is one tax rate but additional tax rates will need to be manually added if needed.

Single Tax Rates

In Settings > Billing, you can add additional single tax rates for your jurisdiction. This can be done by clicking 'Add Tax Rate'. You can then fill in the name and rate and save.

Combined Tax Rates

Combined Tax Rates are made up of existing Single Tax Rates. Combined Tax Rates can be used in two ways:

  • A combined tax rate will be shown as combined on the invoice. For example in Canada there is HST tax, which is made up of PST + GST. To create this tax rate in Karbon:

  1. Add Single Tax Rates of 1. PST (7%) and 2. GST (5%)

  2. Create a Combined Tax Rate using the PST and GST tax rates

  3. Select Show as Combined Rate = 12%

  4. When applied to the invoice it will appear on the tax summary as HST 12%

  • As a combined tax rate that will be shown as separate on the invoice. In the US, multiple tax rates will likely need to be applied on an invoice e.g. Marin County in California will have Federal, State, and County taxes.

    If your firm displays summarized invoices or does Fixed Fee work, there is only one place on the invoice to apply a tax rate. This option allows the you to set up a tax rate combination so multiple rates can be applied to the invoice. To create this example in Karbon:

  1. Create Single Tax Rates of 1. Federal Tax Single Rate (7.75%) 2. State Tax Single Rate (7.25%) 3. County Rate (0.25%)

  2. Create a Combined Tax Rate using the Federal, State and County Single Rates

  3. Select Show as Separate Components

  4. When applied on the invoice, even though applied as one rate, each will be applied separately and recorded separately

Compound Rates:

Compound tax is calculated on top of the other applicable taxes on the line item. Only one of the tax rates in the combined modal can be chosen as the compound rate.

When a combined rate is added that includes a compound rate, the summation of the rate will be displayed in the tax table summary. When applied to the invoice, the effective rate will be applied. This is how accountants expect compound rates to work and it is how Xero and QuickBooks Online (QBO) do it. For example:

  • If the combined rate is Tax Rate 1 (10%) and Tax Rate 2 (10% - Compound), the rate will be displayed as 20% in the tax rate table.

  • Example of how compound rates are applied on the invoice:

    • Invoice of $100

    • Tax Rate 1 - 10%

    • Subtotal $110 (100 x 10%)

    • Tax Rate 2 - 10%

    • Subtotal $121 ($110 x 10%)

    • Total = $121

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