When you apply a discount to your estimate or invoice, the discount is applied across all the line items in the document evenly. Here's a quick example to illustrate:

You have two line items. One is $100 and the other is $200.

You apply a 10% discount. Now your items are $90 and $180. Each one had 10% deducted from it.

If instead, you applied a $10 discount, now your items would be $96.77 and $193.33.

That's because one of your items was 1/3 of the total, and the other was 2/3 of the total, so the $10 discount was applied as 1/3 of $10 ($3.33) to the first item, and 2/3 of $10 ($6.66) to the second item.

Now that we understand how discounts apply across line items, we can look at how taxes come into the equation.

**Taxes are only applied after the discount has been applied. **

So in the case where we applied a 10% discount, if each item had a 5% tax, the tax would not be applied to $100 and $200, it would be applied to $90 and $180, giving you $94.50 and $189.

So we can break the subtotal down like this:

item 1 + item 2 = $300

- 10% discount = $270

+ 5% tax = **total of $283.50**

That's a brief overview of how taxes work when a discount is added. Try this out on your next estimate or invoice and you should have a much clearer understanding of how it works.