You can use Global Tax Determination’s online tax calculator to see how various business decisions would affect tax results. For example, you can test how the tax rate would change if you opened a new point of sale in a different taxing jurisdiction.
Let’s assume that you’re selling T-shirts in Denver from a small store downtown. You now have the opportunity to open a store in downtown Minneapolis, and you’re curious what the tax rate on T-shirts would be. You can test this scenario with Global Tax Determination’s tax calculator.
Check your company’s tax obligation settings
To accurately calculate tax, you need to tell Global Tax Determination where you have tax obligations. There are two ways to do this:
- Add them to your organization’s settings as explained in this article.
- Add a temporary tax obligation during a calculation.
Adding tax obligations to your organization’s settings
This is the most common case. Adding or updating tax obligations in your organization's settings will affect all future transactions. You can find the step-by-step instructions in this article.
Adding a temporary tax obligation during a calculation
If you’re just researching tax rates in a jurisdiction where you don’t yet have a tax obligation, you can temporarily add a tax obligation during the calculation. The tax obligation will only apply to that specific calculation and won’t be saved for future transactions. It will, however, override any general settings you might have already configured for your organization in Global Tax Determination.
Follow these steps to add a tax obligation when running a test transaction:
- In the Line item settings section, click Show additional fields.
- Select Tax obligation / registration from the dropdown menu.
- Select the type of tax obligation from the dropdown menu.
- Fill in the location information for the tax obligation. For more information on registration statuses, read this article.
Run a simple transaction
- Log in to Global Tax Determination.
- Click on the Tax Calculator tab.
- Don't change any of the settings in the Document-level settings section except for Currency Type, which is set to USD by default but can be changed if needed.
- Document Date will automatically be filled in with today's date.
- Leave the Document Number field blank.
- The Tax Calculation Type is set to 1 - Forward Calculation by default since you're calculating forward from the gross amount to get the tax rate. You can read about calculation types in this article.
- By default GTD will not create an invoice from this calculation as this is just a test transaction.
- In the Locations section, under Location 1, select both the Ship To and Ship From locations, as the address of your store in your chosen location will serve as both.
- Enter the address of the store, then click Get geo code for this address.
- If you don’t know the exact location at this point, skip the street address, and enter the city, state, and ZIP code only.
- Click the circle to select a Geo Code from the list.
- If you don’t pick a Geo Code, Global Tax Determination will choose the most suitable Geo Code based on the address you entered. Read more about Geo Codes here.
- In the Line item settings section, leave the default settings:
- The payment type is Debit.
- The Transaction Type is 1 - Sale.
- If you need to add a temporary tax obligation, you can do that now by following the steps in the previous section.
- In the Line Items section, enter the net sales price of your product in the Gross Amount field. In this example, it’s going to be $50.
- Click Calculate Tax.
The results of the test transaction will appear:
- The first section contains the total tax calculated for this transaction; in this case, it’s $4.51. Make a note of this tax amount as it’s going to be your baseline.
- The Jurisdiction Summary section shows how this total tax is made up of the various state, county, and city-level taxes and what tax rates and tax amounts are charged on these levels. In the same section, the Tax Type column shows the tax type the calculator identified. For this transaction, it’s Type 1, or sales tax.
- If you scroll down the page, you can see the details of Line Item 1, which in this case are the same as the transaction summary since there was only one line item in this transaction. If you added more line items, the details of each line item would be listed separately under Line Item 1, Line Item 2, Line Item 3, etc., and the transaction summary would show the total value of those line items.
- You can click View full details to see a list of the tax rules that were taken into account when calculating tax.
Test transactions with Good/Service codes
- Click the X icon to close the results of the test transaction.
- In the Line Items section, add the Good/Service code that matches your product category to Line Item 1. The Good/Service Code User Guide can help you find the appropriate code. In this example, it’s going to be 2038356, the Good/Service code for General Clothing.
Sovos provides descriptions of the Good/Service codes on the Sovos Portal and our legal team can explain the difference between two similar categories; however, Sovos isn’t able to advise you on which one is the best for your business. Ask your tax consultant to determine which of the available options you should choose for your product or service.
- Click Calculate Tax.
This time, the total tax amount is $0.00. The Good/Service code tells GTD that this item is clothing, which is exempt from sales tax in Minnesota, so no tax is calculated for this transaction.
Review the data
Global Tax Determination is a highly reliable tax calculator. It has up-to-date rates for thousands of product codes in 185 countries so you can be confident that you're getting the most accurate tax rate. If the tax rate you're seeing is different from what you were expecting, get in touch with Customer Service or Professional Services to discuss why you might be seeing a difference.
Test other scenarios as necessary
You can use this type of calculation method to test several different scenarios by changing any of the elements. You can change the Good/Service code to see what the tax rate would be if you introduced a different product, or you can check how tax rates would change if you started selling your merchandise online and your Ship To and Ship From locations weren't always the same.