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Tax Inclusive Pricing

In this document, you’ll learn how tax-inclusive pricing works in Medusa.

note

Tax Inclusive Pricing is currently in beta mode and guarded by a feature flag. To use Tax-Inclusive Pricing either:

  1. Enable the MEDUSA_FF_TAX_INCLUSIVE_PRICING environment variable;
  2. Or enable the tax_inclusive_pricing key in the Medusa server's settings.

You can learn more about enabling it in the feature flags documentation.

Introduction

Tax Inclusive pricing allows you to set the final prices for products and shipping options regardless of the customer's applicable tax rates. When tax-inclusive prices are used, Medusa automatically calculates the tax amount for a given price.

This can be useful when some countries have the same currency but have different tax rates. If you want your prices to be the same across these countries, you have to manage two price lists to account for the tax differences. Using tax-inclusive pricing you only have to specify the price once.

Then, Medusa handles calculating the tax amount using the tax rate and the tax-inclusive price. This is managed in the backend and relayed to accounting and analytics tools.

How is Tax Inclusivity Defined

Tax inclusivity can be toggled for regions, currencies, price lists, and shipping options either during creation or while editing. This is represented by the boolean attribute includes_tax available in the entities Region, Currency, PriceList, and ShippingOption. By default, this attribute is set to false.

If you want to enable or disable this attribute for any of these entities, you can use the create or update endpoints related to these entities as shown in the Admin API reference.

The value set for these entities can affect whether line items and shipping methods are tax inclusive or not.

How is Tax Inclusivity Defined for Line Items

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When a product is added to the cart, a line item is created to represent that product in the cart.

The LineItem entity also has the includes_tax attribute. The value of this flag is set to true if:

  • The region of the line item has the includes_tax attribute set to true;
  • Or the currency of the line item has the includes_tax attribute set to true;
  • Or a price list that includes the product variant associated with the line item has the includes_tax attribute set to true, and the tax-inclusive amount of one of the variant’s prices in the price list is less than the original price of the variant;
  • Or one of the variant’s prices in the price list uses a currency or region that has the includes_tax attribute set to true, and the tax-inclusive amount of the price is less than the original price of the variant.

How is Tax Inclusivity Defined for Shipping Methods

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When a shipping option is selected, a shipping method is created based on that shipping option. You can learn more about this in the Shipping Architecture documentation.

The ShippingMethod entity also has the includes_tax attribute. Its value is the same as the value of includes_tax of the shipping option the method is associated with.

Tax Amount Calculation Formula

When a price is tax-inclusive, the tax amount is calculated using the following formula:

const taxAmount = (taxRate * taxInclusivePrice) / (1 + taxRate)

Where taxRate is the tax rate to be applied to the price, and taxInclusivePrice is the price entered by the store operator.

For example, if the tax rate is 0.25 and the price of a product is 100, the resulting tax amount calculated by Medusa will be 0.25 * 100 / 1.25 = 20.

Retrieving Tax Amounts

This section covers at which point tax amounts are calculated for different entities, how they are calculated when the price is tax inclusive, and what fields can be returned in the endpoints relative to each of the entities.

note

If you have disabled the automatic calculation of taxes in a region, you must manually calculate the taxes of the line items and the cart. Otherwise, taxes will not be calculated or retrieved during checkout for each entity mentioned here.

Products

Taxes are calculated for each product variant either when a single product is retrieved or a list of products is retrieved.

Among the pricing fields retrieved for each variant, the following fields are relevant to taxes:

  • original_price: The original price of the variant.
  • calculated_price: The calculated price, which can be based on prices defined in a price list.
  • original_tax: The tax amount applied to the original price.
  • calculated_tax: The tax amount applied to the calculated price.
  • original_price_incl_tax: The price after applying the tax amount on the original price.
  • calculated_price_incl_tax: The price after applying the tax amount on the calculated price
  • original_price_includes_tax: a boolean value indicating whether the amount in original_price includes the tax amount by default or not.
  • calculated_price_includes_tax: a boolean value indicating whether the amount in calculated_price includes the tax amount by default or not.

If tax inclusivity is enabled for the current region or currency (based on whether the default price is specified for the region or currency, with region taking a higher precedence):

  • original_price will include the tax amount by default.
  • original_price_includes_tax will be set to true.
  • original_price_incl_tax will have the same amount as original_price.
  • original_tax is automatically calculated by Medusa.

Also, for each of the product variant’s prices in a price list, if tax inclusivity is enabled (either if the price list itself has the includes_tax attribute set to true, or the variant’s price in the price list uses a currency or region that has the includes_tax attribute set to true), and the amount of the price is less than the original price of the variant:

  • calculated_tax will include the tax amount by default.
  • calculated_price_includes_tax will be set to true.
  • calculated_price_incl_tax will have the same amount as calculated_price.
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Price lists include a list of prices that can be used to override the original price of a product’s variants.

Each variant’s price in the price list is compared to the variant’s original price using the following condition:

amount < (1 + taxRate) * calculatedPrice

Where amount is the amount of the variant’s price in the price list, taxRate is the applied rate, and calculatedPrice is the original price of the variant.

Here is an example of these fields when tax inclusivity is enabled for both the currency and the price list:

{
original_price: 110,
calculated_price: 100,
calculated_price_type: "sale",
original_price_includes_tax: true,
calculated_price_includes_tax: true,
calculated_price_incl_tax: 100,
calculated_tax: 20,
original_price_incl_tax: 110,
original_tax: 22,
}

Line Item

The taxes of line items are calculated and retrieved whenever the cart is retrieved or updated.

Each line item returned in any of the cart’s requests has total fields related to the price of the line item and its taxes. Among those fields, the following are relevant to tax-inclusive pricing:

  • unit_price: The original price of the variant associated with the line item.
  • tax_total: The total tax amount applied on the original price taking into account any applied discounts as well.
  • original_tax_total: The total tax amount applied on the original price without taking into account any applied discounts.
  • subtotal: The total of the line item’s price subtracting the amount in original_tax_total.
  • origial_total: The subtotal including the original_tax_total amount.

If tax inclusivity is enabled for the line item, unit_price will include the tax amount. The tax amount, which will also be the value of tax_total, is calculated using Medusa’s formula for tax inclusive pricing based on the line item’s tax rates. The calculation takes into account any discounts applied on the item, which means the discount amount is deducted from the original price.

Then, the subtotal is calculated by subtracting the tax_total from the total of the line item’s price. original_total has the same value as subtotal.

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The total of the line item’s price is the variant’s unit_price multiplied by its quantity in the cart.

Finally, original_tax_total undergoes the same tax_total calculation, however, any discounts applied on the line item are not taken into account. This means the discount amount is not deducted from the original price.

Shipping Options

Taxes for Shipping Options are calculated and retrieved when the list of shipping options is retrieved.

Among the returned fields for each shipping option, the following are relevant to each of their pricing and taxes:

  • amount: The original price of the shipping option.
  • price_incl_tax: The price of the shipping option with tax included.
  • tax_amount: The tax amount applied to the shipping option.

If tax inclusivity is enabled for the shipping option, amount and price_incl_tax have the same value. Also, the value of tax_amount is calculated using Medusa’s formula for tax inclusive pricing.

Carts and Orders

Carts and Orders have the same total fields relevant for taxes.

A cart’s totals, including its taxes, are calculated and retrieved whenever the cart is updated or retrieved.

An order’s totals, including its taxes, are calculated and retrieved whenever the order is retrieved both on the storefront and on the admin.

The relevant fields are:

  • shipping_total: The total tax-exclusive price of the shipping methods used in the cart or order without any applied taxes.
  • tax_total: The total of the taxes applied on the cart or order, including taxes applied on line items and shipping methods.
  • subtotal: The subtotal of line items including taxes, but without shipping total.
  • total: The total of the cart or order, including the subtotal, shipping total, and taxes applied.

During the calculation of the totals of different components of the cart or order, such as shipping or line items, if tax inclusivity is enabled on that component, a process similar to those explained above will be applied to retrieve the total.

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