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Admin Tools: Sales Tax - Gross Profit Sales Tax Calculation

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How it works

GP Sales Tax states that services rendered are taxable for their profit, Sales less Cost, rather than the entire bill amount.


The two states that currently utilize this method are Pennsylvania and New Mexico. If the worksite address was within either of those states, their profit is subject to tax.


The calculation goes like this:


Gross Profit: (Total Bill – (Total Pay + Employer Taxes + Worker Comp Cost + Burden + Other Cost)


Sales Tax Amount: Sales Tax Rate x Gross Profit


For instance: PA has a tax rate of 6% and a county tax rate of 1% within Philadelphia. The employee has been paid $400 and the bill went for $600. Worker comp cost is $10, Burden is $2, and Employer Taxes is $50. This makes the Gross Profit equal to 600 – (400 + 10 + 50 + 2) = $138. The Sales Tax Amount would be $9.66. The bill that would be sent to the customer for that employee would be $609.66.

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