Compounding or "Piggy Backing" Taxes - An Example

Added 10/12/00
Article ID#: K000082

The following is a detailed example of how to compound or "piggy back" taxes in RDP.  The purpose being a tax/gratuity/resort fee needs to be charged on X dollar amount and then another tax charged on top of that total.  Example:

The state and local taxes are calculated based on the total charge plus the 16% gratuity.  For example, a $100 component has a $16.00 gratuity.  Then, the entire $116.00 is subject to a 6.5% tax, divided into the state and local components.  The property only needs the taxes broken into separate general ledger accounts, folio taxes are not an issue.

Every package component has a16% gratuity plus the 5.5% state and 1.0% local tax.  Certain non-package items, such as a newspaper, are only taxed at 6.5%, not compounded.

Steps

In order to calculate the compounded taxes, first complete the following grid: 

Since the gratuity is always calculated on the total tax, its percentage will be calculated at 16%, regardless of compounding.  Conversely, calculations must be performed in order to determine the state and local compound tax percentages.  In order to calculate these percentages, use a sample component price of $100.00.  With a sample price of $100.00, dollar figures and tax percentages will be equal (based on 100%).  The following sample calculations determine the compounded tax percentages for the state and local taxes.

1. Calculate the gratuity on the $100.00 charge:

   $100.00
   X 1.16
   116.00	(The tax percentage is calculated as a whole number in order to arrive at the total.)

    

2. Calculate the compounded state tax on $116.00.

   $116.00
   X 1.055
   122.38	(Again, the tax percentage is calculated as a whole number in order to arrive at the total.)

    

3. Calculate the compounded local tax on the $116.00.

   $116.00
   X 1.01
   117.16

   With these calculations, the total gratuity, state, and local taxes are known on the $100.00 component.  In order to arrive at the actual percentages, subtract the uncompounded portion ($16.00) from the total amount in steps 2 & 3:
   

4. Subtract the uncompounded amount from the state tax total:

   $122.38
   -   16.00
   106.38

    

5. Subtract the uncompounded amount from the local tax total:

   $117.16
   -   16.00
   101.16

The total tax (and therefore percentages) are the circled figures above, 16.00, 6.38, and 1.16.  So, the total tax on a $100.00 charge is $23.54 (16 + 6.38 + 1.16).  With these figures, the above table can now be completed:

With the above table completed, transcribe the information into the appropriate RDP tables.  First, define the taxes in option “182 -1” - “Change Offset Accounts for RDP Ledgers:

Next, define the TA tax code in the C7 table:

At the Wickenburg, all incidental charges are only subject to the state and local taxes.

Now, define the tax category in RDP186 for all package components (subject to the gratuity plus the compounded state and local taxes):

Because all components are subject to the three taxes, only one category is necessary.  Once the category is defined, along with the tax code (TA), define the sub-code TA01 in the C7 table:

Now that all three taxes are defined in the corresponding RDP tables, define the first transaction code, B259 - Newspaper, in option “182 - 2” - “Add Transaction Code”

The B259 transaction code is not a variable component and is not subject to the gratuity tax.

Now, complete the room charge adjustment code, also in option 182-2:

Verify that taxes are being calculated correctly by posting the transaction codes, exploding them, and verifying them in option “184 - 2” - “Inquire by Transaction Code”.  Posting code B259 for $1.00 has the following general ledger ramifications:

• The state and local taxes are calculated (and rounded) to .06 and .01, respectively

Posting a room charge adjustment for 100.00 creates the following general ledger entries:

• The tax percentages are calculated correctly, based on the calculations above.

The final exa is to create a variable package with three components, room, breakfast, and lift tickets, each subject to the three taxes, gratuity, state, and local.  In addition, the state and local taxes are compounded on top of the charge plus the gratuity.  The components appear as:

Breakfast

• The tax category indicates all taxes are charged to the component.

Lift Tickets

Rate Set

The completed package appears as:

Posting the package on a one night reservation and exploding it into the general ledger has the following ramifications:

The taxes are figured correctly at $33.60 (Gratuity), $13.40 (State), and $2.44 (Local), using the following calculations:

1. Gratuity:

   Room:	100.00	Breakfast:	10.00	Lifts:	100.00
   	X.16		X.16		X.16
   	16.00		1.60		16.00
   Total:  $16.00 + $1.60 + $16.00 = $33.60

    

2. State Tax:

   Room:	100.00	Breakfast:	10.00	Lifts:	100.00
   Gratuity:	X.16		X.16		X.16
   Total:	16.00		1.60		16.00
   Tax (@5.5%):	.055		.055		.055
   Total State Tax:	$6.38		$.64		$6.38
   Total Package Sales Tax:  $6.38 + $.64 + $6.38 = $13.40

    

3. Local Tax:

   Room:	100.00	Breakfast:	10.00	Lifts:	100.00
   Gratuity:	X.16		X.16		X.16
   Total:	16.00		1.60		16.00
   Tax (@1.0%):	.01		.01		.01
   Total State Tax:	$1.16		$.11		$1.16
   Total Package Sales Tax:  $1.16 + $.11 + $1.16 = $2.44