> For the complete documentation index, see [llms.txt](https://docs.rmhpos.com/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.rmhpos.com/store-manager/configure-pos-and-store-manager/store-financials/computing-tax-on-item-cost.md).
# Compute tax on item cost instead of price
1. Set up a **Sales Tax** type based on cost:
1. Click **Setup**.
2. Expand **Financial**.
3. Click **Sales Tax**.
4. Click **New**.
5. In the **Description** field, type a description of the sales tax type, e.g., State Tax on Cost.
6. In the **Code** field, type a short code for the sales tax type, e.g., ST-COST.
7. In the **Sales Tax Rate (%)** field, type the amount of sales tax, e.g., 10.000.
8. Click **Save And Close**.
2. Set up an **Item Tax** type based on cost:
1. Click **Setup**.
2. Expand **Financial**.
3. Click **Item Tax**.
4. Click **New**.
5. In the **Description** field, type a description of the item tax type, e.g., Tax on Cost.
6. In the **Code** field, type a short code for the item tax type, e.g., TAX-COST.
7. Select **Compute tax on Cost instead of Price**.
8. In the **Apply individual taxes in the following order** section, for the 1st tax select the Sales Tax type you set up earlier, e.g., State Tax on Cost.
9. Select **On Receipt** to print the sales tax on receipts.
10. Click **Save And Close**.
3. Set up an item so that POS computes tax on the item's cost:
1. Click **Merchandising**.
2. Click **Items**.
3. Look up and open the item.
4. Click the **General** tab.
5. From the **Item tax** drop down, select the Item Tax type that you set up earlier, e.g., Tax on Cost.
6. In the **Cost** field, type the cost per unit, e.g., $8.00.
7. Click **Save And Close**. Now, when the item is added to a transaction in POS, the tax is calculated on the item's cost. For example: Item Tax (%10) x Cost ($8.00) = $8.80.
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