Question 1

What is the difference between adding tax and extracting tax?

Accepted Answer

Adding tax (exclusive) starts from a pre-tax subtotal and adds the regional rate on top to produce the gross invoice total. Extracting tax (inclusive) starts from a gross total that already contains the tax and works backwards to reveal the net pre-tax amount and the embedded tax obligation.

Question 2

How do you extract VAT from a gross amount?

Accepted Answer

Divide the gross total by one plus the rate as a decimal to get the net amount, then subtract the net from the gross to get the tax. For example, 120 at 20 percent gives a net of 100 and embedded VAT of 20, because 100 grossed up by 1.20 returns the original total.

Question 3

Why is the extracted tax less than the rate percentage of the gross total?

Accepted Answer

Inclusive tax is calculated on the net base, not on the gross. Taking 20 percent of a 120 gross total gives 24, but the embedded VAT is only 20, because the 20 percent was originally applied to the 100 net figure. Extracting always uses gross divided by one plus the rate.

Question 4

Are the built-in tax rates guaranteed to be current?

Accepted Answer

The preset rates are standard published baselines and can change, and local or municipal add-ons may apply on top of state or provincial rates. Always confirm the exact rate with the official tax authority before filing, or use the Custom Rate option to enter a verified figure.

Global Sales Tax & VAT Calculator

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