Ok, the the answer to my question is "you come up with your price by determing the price the customer will pay and working backwards". The next question is: within the gnucash business framework, where should this "tax included" flag be set?
-derek Kevin Benton <[EMAIL PROTECTED]> writes: > No, I'm not. As a merchant, I use Price = Total / ( 1 + STAP ). Then, from > there, you can re-compute each tax. The customer already paid the total, > which is why you need to compute the price for your gross sales forms. > Think about it this way - if I as a merchant tell my customers that tax is > included, and I fill out all my tax forms, do I want to pay tax on the price > or the total (price + included tax)? I think I'll pay tax on the price of > the goods to the customer. You can pay tax on both if you'd really like. > Your government will take your money either way. :) When it comes time to > audit records, it's common practice to put down the cost of goods to the > customer (without tax), plus additional taxes added on. When you advertise > a price that includes tax, you've decided what the customer cost (pre-tax) > is even if you haven't calculated it yet. > > Let's use a simple example. > > Let's say that I advertise my spiffy widget for $1100 each (tax included). > Let's also say that my aggregate tax rate (city+county+state+others) is 10%. > What we need to do is figure out what the price of the item would have been > if tax were not included. That's going to be less than $1100, right? Ok - > knowing that, let's figure out what the cost would be if we had not included > tax. Again, we know the total price ($1100), and the sales tax aggregate > percentage (10%). To compute the amount of tax that was paid, we must first > compute the price of the widget without tax. Price = Total / ( 1 + STAP ). > So, if Total is 1100 and 1 + STAP = 1.1, then we have Price = 1100 / 1.1. > Price = 1000. So, if the price is $1000 and the total paid is $1100, then > the aggregate tax amount is $100. From there, you can slice up the > percentages of the $100 for each of the taxes you paid. > > Let's work it the other way just as an exercise. Let's say that you chose > to advertise your product for $1100 each (tax included) but you forgot that > you included the tax already. Remember that our original formula is Total = > Price * ( 1 + STAP ). Note that this is the same as Total = Price + ( Price > * STAP ). There you'd have Total = 1100 * ( 1 + 0.10 ) = 1100 * 1.1 = 1210. > Notice here that the difference between the price and the total is now $110. > That's an additional 10% higher. So, in other words, you're actually going > to pay tax on your tax! YUCK! > > Have I confused you enough yet? > > When computing sales tax for sales when tax is included in the price of the > sale, for tax reporting purposes use this formula: > > Tax Paid By Customer = Total - ( Total / ( 1 + STAP ) ) > > How did I get it? > > Tax Paid By Customer = Total - Price > > What's Price? Just like we figured out before... > > Price = Total / ( 1 + STAP ) > > RECAP... > **************************************************************************** > ****************************************** > Total Paid By Customer = Sale Price Tax Not Included * ( 1 + Sales Tax > Aggregate Percentage ) ) > Price Paid By Customer = Sale Price Tax Included / ( 1 + Sales Tax Aggregate > Percentage ) > Tax Paid By Customer = Sale Price Tax Included - ( Sale Price Tax Included / > ( 1 + Sales Tax Aggregate Percentage ) ) > **************************************************************************** > ****************************************** > > Kevin Benton > > WebEx Communications, Inc. accepts no liability in relation to any personal > emails, or any content of any email that does not relate directly to the > business of WebEx Communications, Inc. > > > -----Original Message----- > From: Derek Atkins [mailto:[EMAIL PROTECTED]] > Sent: Thursday, June 13, 2002 8:56 PM > To: Kevin Benton > Cc: Conrad Canterford; [EMAIL PROTECTED] > Subject: Re: Gnucash Business: Proposal: handling multiple tax accounts > > > You're still not answering the question I'm asking... You're looking > at it from the customer point of view, not the merchant. I'm asking > from a merchant point of view. > > -derek > > Kevin Benton <[EMAIL PROTECTED]> writes: > > > If my read of it is correct, the customer already paid sales tax. > > Therefore, you would use the formula... > > > > Price = Total / ( 1 + STAP ) > > > > as below. You'd work backwards. If you don't, you wind up paying more > tax > > as a merchant while your customer gets a free discount. :/ > > > > Kevin Benton > > > > WebEx Communications, Inc. accepts no liability in relation to any > personal > > emails, or any content of any email that does not relate directly to the > > business of WebEx Communications, Inc. > > > > > > -----Original Message----- > > From: Derek Atkins [mailto:[EMAIL PROTECTED]] > > Sent: Thursday, June 13, 2002 7:02 PM > > To: Kevin Benton > > Cc: Conrad Canterford; [EMAIL PROTECTED] > > Subject: Re: Gnucash Business: Proposal: handling multiple tax accounts > > > > > > Thanks, but this wasn't quite what I was asking. I was asking a > > procedural question, not a mathematical question. I was asking how > > the process works for determining prices; do you start with the final > > price and work backwards, or do you work forwards? Following that, > > does it imply that the "TaxIncluded" flag means work backwards, too? > > That would mean that you enter the final price and the tax is computed > > backwards from that? It also doesn't answer the "where do you set the > > TaxIncluded flag" question.... > > > > But thanks for making the math simple for others on the list ;) > > > > -derek > > > > Kevin Benton <[EMAIL PROTECTED]> writes: > > > > > Anyone who operates a vending machine business has this problem. A > little > > > algebra helps on this one. > > > > > > Total is the total advertised price (including tax) > > > Price is the actual price without sales tax. > > > For this equation, STAP is the Sales Tax Aggregate Percentage including > > all > > > taxes. > > > > > > Total = Price * (1 + STAP) > > > Since the total and tax rates are known, we need to get price by itself. > > > First, let's get Price on the left like we're used to... > > > > > > Price * (1 + STAP) = Total > > > Then, what we do to the left side, we must do to the right. > > > > > > Price * (1 + STAP) / (1 + STAP) = Total / (1 + STAP) > > > > > > Price = Total / (1 + STAP) > > > > > > Try it for yourself - plug in the numbers off a receipt you've been > given > > > and see if it works both ways. > > > > > > $1.00 item taxed at 5% requires a payment of $1.05. > > > Price = $1.05 / (1 + 0.05) = $1.00 > > > > > > Imagine that... :) Now you know how to compute sales tax backwards and > > > forwards. :) > > > > > > Kevin Benton > > > > > > WebEx Communications, Inc. accepts no liability in relation to any > > personal > > > emails, or any content of any email that does not relate directly to the > > > business of WebEx Communications, Inc. > > > > > > > > > -----Original Message----- > > > From: Derek Atkins [mailto:[EMAIL PROTECTED]] > > > Sent: Thursday, June 13, 2002 5:59 PM > > > To: Conrad Canterford > > > Cc: [EMAIL PROTECTED] > > > Subject: Re: Gnucash Business: Proposal: handling multiple tax accounts > > > > > > > > > Conrad Canterford <[EMAIL PROTECTED]> writes: > > > > > > > To do it properly, its a little more complicated than that. In > > > > Australia, an extra option "Tax included" would also be appreciated, > as > > > > a large number of small businesses (and especially any retail > business) > > > > will advertise and invoice the *tax inclusive* price. Asking whoever > is > > > > doing the accounts to deduct the tax from every invoice as its entered > > > > is not going to make you any friends... :-) > > > > > > Where should this "tax included" option be stored? Since prices > > > are advertized with-tax, how is the tax calculation made? > > > > > > > I think a global table would be preferable. If someone is running > > > > multiple entities, this might save them re-entering a lot of data. If > > > > they are not, well it makes no difference to them. > > > > > > What do you mean, "global table"? > > > > > > > > b) How do you reference tax tables for "posted" entries? > > > > > - Tax Tables are immutable. > > > > > - Tax Tables are mutable until they are "used" (at which point > > > > > they become immutable). > > > > > > > > Personally, I'd go for this one. > > > > > > > > > I think this might be too confusing for a user. > > > > > > > > Why? A simple dialog pops up saying "I'm sorry, but this entry is in > use > > > > by an invoice and cannot be changed.". > > > > > > > > > - Tax Tables are mutable, however when you post an invoice the > > > > > Tax Table code creates an internal, immutable copy that is > > > > > linked to the mutable tax table in question. > > > > > > > > This is really just an enhanced version of (b) as far as I'm > concerned. > > > > Basically (if you think of it the other way around), when the user > goes > > > > to change a tax table entry that's been used, the system automatically > > > > creates a new version of that entry and isolates the old one. This is > > > > just as prone to confuse a user as (b). However, I think any of the > > > > other options are also likely to confuse users, just in different > ways. > > > > > > The reason I prefer this last appoach is that: > > > > > > 1) to the user, the tax table is always mutable. They can change it > > > at will, but > > > 2) any posted invoices will refer back to the tax table that existed > > > when it was posted, and > > > 3) all the magic happens under the covers, as far as the user is > > > concerned, and > > > 4) it will save space by reusing tax-tables as much as possible. > > > > > > Thanks for your feedback. > > > > > > -derek > > > -- > > > Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory > > > Member, MIT Student Information Processing Board (SIPB) > > > URL: http://web.mit.edu/warlord/ PP-ASEL-IA N1NWH > > > [EMAIL PROTECTED] PGP key available > > > _______________________________________________ > > > gnucash-devel mailing list > > > [EMAIL PROTECTED] > > > http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-devel > > > > -- > > Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory > > Member, MIT Student Information Processing Board (SIPB) > > URL: http://web.mit.edu/warlord/ PP-ASEL-IA N1NWH > > [EMAIL PROTECTED] PGP key available > > -- > Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory > Member, MIT Student Information Processing Board (SIPB) > URL: http://web.mit.edu/warlord/ PP-ASEL-IA N1NWH > [EMAIL PROTECTED] PGP key available -- Derek Atkins, SB '93 MIT EE, SM '95 MIT Media Laboratory Member, MIT Student Information Processing Board (SIPB) URL: http://web.mit.edu/warlord/ PP-ASEL-IA N1NWH [EMAIL PROTECTED] PGP key available _______________________________________________ gnucash-devel mailing list [EMAIL PROTECTED] http://www.gnucash.org/cgi-bin/mailman/listinfo/gnucash-devel
