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I'm looking at the docs on tax rules and I'm a little fuzzy in regards to the priority field and how rules apply.

If two tax rules with the same priority apply, the taxes are added together. If two taxes with different priority settings apply, the taxes are compounded.

What does compounded mean in practice? An example would be great.

Many Thanks.

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Compounded means that the value of the second tax is calculated based on the total resulted after applying the first tax, see an example bellow (resource):

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