If your tax jurisdiction charges tax on tax, use this procedure to set up a tax code that is subject to tax on tax, and then assign the "tax on tax" tax class to your tax jurisdiction.
To set up tax codes for tax on tax
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Select Library Master Setup menu > Sales Tax Code Maintenance.
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In the Tax Code field, enter the tax code that is subject to tax on tax by your tax jurisdiction. For example, if taxes for tax code A will be taxed by tax code B, enter A. For more information, see Sales Tax Code Maintenance – Fields.
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Select the Tax on Tax check box.
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In the Tax Class (Tax on Tax) field, enter the tax class to use during tax on tax calculations and click Accept.
Note A "tax on tax" tax class can be entered only in this field; it cannot be entered in Sales Tax Class Maintenance.
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In the Tax Code field, enter the tax code for your jurisdiction that charges tax on tax. For example, if taxes for tax code A will be taxed by tax code B, enter B.
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In the Tax Class field, enter the tax class you entered in the Tax Class (Tax on Tax) field in step 4.
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In the Tax Rate field, enter the tax rate percentage.
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Select the Sales check box and click Accept.
A tax code is set up for tax on tax.
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