Why does my purchase order charge tax on the shipping as well as the items?

The order of the calculation

1. Each line is quantity times unit price, rounded to the smallest currency unit.
2. The lines are added up to give the 'Subtotal'.
3. Shipping is added, if you entered any.
4. Tax is worked out at your rate on subtotal plus shipping.
5. Total = subtotal + shipping + tax.

There is no option to tax the items only, and no way to use two rates in one document. It is one rate on everything above it.

The difference in figures

You order 120 gift boxes at 14.50 each, shipping is 150, and you enter a 15% tax rate for illustration. This is what the Purchase-order generator works out:

• With shipping in its field: subtotal 1,740.00, shipping 150.00, tax 283.50, total 2,173.50 SAR.
• Without shipping: subtotal 1,740.00, tax 261.00, total 2,001.00 SAR.

The tax differs by 22.50, which is exactly 15% of the shipping. That is the only effect of putting shipping in its own field.

If the supplier does not tax shipping

The reference is the supplier's quote or the invoice they will issue, not the tool. If their quote taxes the goods only, make the purchase order match it:

1. Leave 'Shipping cost' empty, so no shipping line appears and nothing extra is taxed. The total shows 2,001.00 SAR.
2. Add a note: 'Shipping 150.00 as per supplier quote, paid separately, no tax'. The overall amount you expect to pay is then 2,151.00, a sum you add up yourself.
3. Do not move shipping into an item line hoping it escapes tax: the tool taxes items too.

Check the rate before you type it

The tool does not know the tax rate in your country or the supplier's, and it never suggests one. It calculates with the number you type, and 15% here is purely for the arithmetic. Take the rate from the supplier's quote or your adviser. To double-check the tax on a single amount on its own, use the VAT calculator with the same rate.