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Create compound tax


Create Compound Tax

 Compound tax settings can be complicated. If you are unsure how to use the compound tax feature, invite your accountant to collaborate.

What is a compound tax?

As shown in the example below, a compound tax is calculated on top of the sum of a pre-tax subtotal and primary tax (or taxes). For example, let’s assume you charge a 10% primary tax and you also have a 5% compound tax.

You charge $100.00 for a product and charge the 10% primary tax. The result is a $110.00 subtotal. The 5% compound tax is charged on the entire $110.00, resulting in a total of $115.50 as in the example below.

Pre-tax sub-total:                $100.00
+ primary tax (10%)                 10.00
Subtotal:                         $110.00
+ compound tax (5% x $110)           5.50
Total:                            $115.50
 Your tax jurisdiction dictates how you calculate compound taxes.

Create a compound tax

In Flare, compound taxes must be part of a tax group and will not be available for selection or application to a transaction individually. Only one compound tax may be used in a tax group.

To create a compound tax in Flare, do the following:

  1. Click the Settings gear icon and click Sales Tax in the Settings menu (1 and 2 below).


  2. Click the Create Tax button (3 below).

    Click the Create Tax button

  3. Enter a name for the tax, an optional description and a tax rate (without the percentage sign). Click the Compound checkbox (4 below).

    Click the Compound Tax checkbox

  4. Click Save (5 above).

    Now that you’ve created a compound tax, you can add it to a tax group as follows:

  5. Click Create Tax Group (6 below).

    Click the Create Tax Group button

  6. Select individual taxes that belong to the tax group (7 and 8 below). If you need to add more taxes to the group, click the "Add item" link (9 below).

    Select taxes for the group

  7. Select the compound tax you created (circled below), enter a name for the tax group, and click Save (10 below).

    Select the compound tax

    You can reorder taxes in the group by dragging the move icon (A below).

     Note: only one compound tax may be used in a tax group. The compound tax will be calculated on all taxes listed above it in the tax group. See Flare compound tax examples.
    The group tax (with compound tax) is now available to apply to transactions.

    You can also create taxes and tax groups on the fly. For example, during invoice creation. You can create individual taxes and tax groups (A below), or, select taxes and tax groups you’ve created previously (B below).

    Adding taxes and tax groups on the fly

Flare compound tax examples

The position of a compound tax in a tax group dictates how the compound tax will be calculated. As shown in Create compound tax, a compound tax will be calculated on all taxes listed above it in the group.

The following examples demonstrate the effective tax rate in two tax groups where the compound tax is in a different position in the group.

Compound tax example 1
Pre-tax sub-total:                $100.00
+ MyStateTax (5%)                    5.00
+ MyCityTax (3%)                     3.00
Subtotal:                         $108.00
+ compound tax (2% x $108)          2.16
Total:                            $110.16
Compound tax example 2
Pre-tax sub-total:                $100.00
+ MyStateTax (5%)                    5.00
Subtotal:                         $105.00
+ compound tax (2% x $105)           2.10
New subtotal:                     $107.10
+ MyCityTax (3% x $100)              3.00
Total:                            $110.10


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