Sales tax is applied to your order subtotal, the amount the guest pays for the items, after any discounts. It's charged on what the guest actually pays, which can differ from the pre-discount subtotal shown on some reports.
How sales tax is calculated
For a single tax rate, the formula is (Subtotal − Discounts) × your sales tax rate = tax. For Canadian named taxes, each tax is calculated and rounded independently, as described below.
Here's an example from a sales report, for a restaurant with a 7% tax rate:
A report line with a $115.17 subtotal shows $8.06 in tax. 7% of $115.17 is $8.06, so it adds up.
A report line with a $40.95 subtotal shows only $2.74 in tax. 7% of $40.95 would be $2.86, not $2.74. The difference is the $1.80 discount: the guest pays $40.95 − $1.80 = $39.15, and 7% of $39.15 is $2.74, the tax shown.
Canadian named taxes
Canadian locations use named taxes with their own rates and rounding modes. Each applicable tax is calculated and rounded independently, then the tax amounts are added together. This can differ slightly from applying one combined percentage and rounding once. Guest receipts show the named taxes separately.
Manage the name, rate, rounding mode, locations, and Active setting under Settings > Taxes and fees. Rounding options are Half up (recommended), Half even, and Up. New taxes default to Half up. If you’re unsure which taxes or rates should apply, check with your tax authority or a tax professional.
Fully redeemed loyalty items show $0 tax
When a guest redeems loyalty points to cover 100% of an item, that item's net price is $0, so its tax is $0 too. That's correct, not a miscalculation.
ℹ️ Note: Tax is owed on the price the guest actually paid. A loyalty redemption is a discount, so a fully redeemed item has a $0 taxable price.
What about surcharges?
If you have credit card surcharging turned on, the guest pays a separate Credit card surcharge fee line at checkout. In most states, that surcharge is itself taxable. Your order's total tax is the tax on the subtotal plus tax on the surcharge, so a surcharged order can show more tax than the subtotal alone would suggest.
⚠️ Surcharge taxability is a state rule, not an Owner rule. On orders with surcharging turned on, expect the tax to be higher than subtotal × rate. The extra is tax on the surcharge.
How it's calculated: Surcharge × your sales tax rate = surcharge tax, added on top of the regular tax on the subtotal.
Exceptions: Colorado and Ohio don't tax the surcharge.
Example (Tennessee, 9.75% tax): On a $100 order, the surcharge is $3.00 (3% of the order). Surcharge tax = $3.00 × 9.75% = $0.30. The guest-facing total becomes $103.30.
This only applies if you have surcharging turned on. Without it, tax is calculated on the subtotal after discounts, as described above.