When you set a Tax Rate within your Payments dashboard, you will be asked whether to designate the rate as Inclusive or Exclusive.
There are two ways to charge tax on a purchase:
- Inclusive tax - when the taxes are already included in the product or service's advertised retail price. With an inclusive tax, there is no need to tack on an additional tax to the transaction's subtotal.
- Exclusive tax - the taxes are not included as part of the retail price. The tax amount would need to be added separately to the transaction's subtotal before the customer pays.
Below, see how a 25% tax rate would affect the total amount due on a transaction depending on whether the tax rate is inclusive or exclusive.
|25% Inclusive||$5.00||$1.00 (already included in the total)||$5.00 ($4.00 + $1.00)|
|25% Exclusive||$5.00||$1.25||$6.25 ($5.00 + $1.25)|