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Zip Code Based Tax Calculation Error


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#1 batracy

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Posted 04 April 2012 - 11:05 AM

I use zip code based sales tax calculation on my site and I'm finding that the site is over charging the sales tax by a few pennies. I'm very confused with this. I've double checked everything and the formula entered is correct, the zip code tax rates are correct, yet the site consistently miscalculates the sales tax. Am I missing something? Here's the formula used: Sales Tax = [Zip Code Rates for CO]% * (Sale Price - Discount) Examples: $0.27 = 2.9% * (8.85 - 0.00), should have been $0.26, actual calculation is $0.25665 $2.16 = 2.9% * (73.85 - 0.00), should have been $2.14, actual calculation is $2.14165 the zip code tax rates are setup so that all of Colorado charges 2.9% unless it is within Larimer County which charges 3.7% unless it is within the city of Loveland which charges 6.7%. Again, I have verified the tax rate table is correct and have tested that it comes up with the correct tax rate for the various zip codes. The formula is correct as well and I just don't see how the site can calculate the tax incorrectly. This can be a really big problem for me if someone complains that they are being overcharged on sales tax. Any ideas on what is happening? Thanks.

#2 DonH

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Posted 04 April 2012 - 02:46 PM

I, too, use a zip code based tax. I haven't had any problems. Your formula is essentially the same as what I use. MN charges tax on shipping, so that is added to (Sale Price - Discount). The only time I've had any questions is if someone thinks that they should be tax exempt even though they have not supplied a tax exempt form (it has to be on file with the seller, before a sale can be tax exempt).

#3 batracy

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Posted 06 April 2012 - 05:56 PM

I just don't understand why it is calculating the wrong amount. The tables, rates, and formula are all correct so one would assume the result would be correct as well, but this is not the case. Any suggestions on what to do about the issue? I thought about adjusting the rates in the zip code table, but then I realized that the error amount is not consistent - as in it is not a fixed percentage, so adjusting the table would not work.

#4 DonH

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Posted 07 April 2012 - 10:08 AM

My guess is that there are rounding errors that are causing the consistent inconsistent errors. :huh: I have seen this in QuickBooks when more than one taxable item is in an order. Small rounding errors compound to make the total tax off by a few cents plus or minus. Because the amounts are relatively insignificant, I've never had a question about it. Heck, even if you use nothing but supplied paper tax tables, the amount owed the state is calculated on the total period taxable sales. When you add up all of the collected tax, there is most likely a small difference. If you are really concerned, I would put in a ticket to tech support.

#5 batracy

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Posted 07 April 2012 - 08:31 PM

Ok, now that is interesting. Based on your comment I rechecked the orders and it seems that tax is being calculated for each product then added together - causing the rounding error to occur. The proper method of calculating tax would be to apply the tax formula after all products have been summed together giving the true order total and the proper tax amount. The current method used is just one more of the many inefficiencies in the shopping cart.

#6 DonH

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Posted 09 April 2012 - 05:55 PM

I imagine that they do it this way because not all items may be taxable. The cart could be a mix of taxable and non-taxable. Or even more confusing, some items could be taxed at a different rate than other taxable items in the cart. Apply the tax on the cart sum and you'd have more than rounding errors! :D

#7 batracy

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Posted 21 April 2012 - 10:29 PM

Yeah, that makes sense now that I understand how the cart is working. Thanks for your help in understanding this. :)

#8 DonH

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Posted 05 May 2012 - 04:35 PM

I'm glad I could help. When something doesn't work the way that I expect, I'm usually just not seeing a more nuanced logic.