Current shipping rate VAT calculation is incorrect more often than not

Bug report

Describe the bug

A clear and concise description of what the bug is.

https://www.taxdoo.com/en/blog/how-to-determine-the-vat-rate-on-shipping-costs-etc-and-how-to-reduce-the-vat-rate-on-some-products-7795/

If the shipping cost is 6 euros 

Book “Effect of spices”: 10 euros plus 0.70 euros Value Added Tax (7 percent Value Added Tax)
Tonka beans: 20 euros plus 3.80 euros Value Added Tax (19 percent Value Added Tax)
Shipping costs (book): 2 euros plus 0.14 euros Value Added Tax (7 percentValue Added Tax)
Shipping costs (tonka beans): 4 euros plus 0.76 euros Value Added Tax (19 percent Value Added Tax).

System information

Medusa version (including plugins): 1.7.0 Node.js version: v16.18.1 Database: PostgreSQL Operating system: Windows 10

Steps to reproduce the behavior

1. npm run seed
2. Go to tax settings / EU 2.1. Change default tax rate to 21% 2.2 Add a new reduced 7% tax rate with an override for the Medusa Mug
3. Create a draft order that only contains the single Medusa Mug and uses PostFake Standard

Screenshots

Expected behavior

Tax should be 1.40€

• 0.7€ product VAT since Mug costs 10€
• 0.7€ shipping VAT since shipping costs 10€

Current behavior

Tax is 2.80€

• 0.7€ product VAT
• 2.1€ shipping VAT

[josetr]

My bad, I meant the math was wrong, not the tax calculation method itself.

I do agree that using TaxJar / Avalara is the right way to do it, but those options are not free, and adding the option that I’m suggesting will be enough for a lot of people, especially those that are only making domestic sales (as long as it’s not the US).

[olivermrbl]

I think the 2nd tax calculation that you’ve provided is also wrong

The override is for the shipping option with a price of $10 (I updated my example as I noticed it was missing the option), so I don’t think it’s directly wrong - at least not in all cases. As you mention, it depends on the country you’re shipping to and how you calculate shipping tax. Right now, we do it in isolation from products. But let us not dwell on details here.

I think your suggestion on making shipping tax depend on products rather than being a separate calculation is reasonable, and I will bring this up for our tax specialists.

Yes, taxes are indeed notoriously complex and hard to handle. Our current way of calculating taxes likely falls short in some areas and can be inadequate for merchants. For those cases, I recommend integrating with an advanced taxes engine like TaxJar or Avalara. These are specialized tools built to cover all cases. We’ve created a tax-provider interface, that should make the integration work less heavy. Alternatively, you can also build your own tax-calculation strategy giving you full control of the calculation done on items in your cart.

I will get back with an update from our taxes team soon 😃