diff --git a/lib/open_food_network/sales_tax_report.rb b/lib/open_food_network/sales_tax_report.rb
index 2579f91e59..f5755210c1 100644
--- a/lib/open_food_network/sales_tax_report.rb
+++ b/lib/open_food_network/sales_tax_report.rb
@@ -38,7 +38,7 @@ module OpenFoodNetwork
 
         if tax_rate != nil && tax_rate != 0
           totals[:taxable_total] += line_item.amount
-          totals[:sales_tax] += line_item.amount * tax_rate
+          totals[:sales_tax] += (line_item.amount * tax_rate / (1 + tax_rate)).round(2)
         end
       end
 
diff --git a/spec/lib/open_food_network/sales_tax_report_spec.rb b/spec/lib/open_food_network/sales_tax_report_spec.rb
new file mode 100644
index 0000000000..32354dfa38
--- /dev/null
+++ b/spec/lib/open_food_network/sales_tax_report_spec.rb
@@ -0,0 +1,50 @@
+require 'open_food_network/sales_tax_report'
+
+module OpenFoodNetwork
+  describe SalesTaxReport do
+    describe "calculating totals for line items" do
+      let(:li1) { double(:line_item, quantity: 1, amount: 12) }
+      let(:li2) { double(:line_item, quantity: 2, amount: 24) }
+      let(:report) { SalesTaxReport.new(nil) }
+      let(:totals) { report.send(:totals_of, [li1, li2]) }
+
+      before do
+        report.stub(:tax_rate_on) { 0.2 }
+      end
+
+      it "calculates total quantity" do
+        totals[:items].should == 3
+      end
+
+      it "calculates total price" do
+        totals[:items_total].should == 36
+      end
+
+      it "calculates the taxable total price" do
+        totals[:taxable_total].should == 36
+      end
+
+      it "calculates sales tax" do
+        totals[:sales_tax].should == 6
+      end
+
+      context "when there is no tax on a line item" do
+        before do
+          report.stub(:tax_rate_on) { nil }
+        end
+
+        it "does not appear in taxable total" do
+          totals[:taxable_total].should == 0
+        end
+
+        it "still appears on items total" do
+          totals[:items_total].should == 36
+        end
+
+        it "does not register sales tax" do
+          totals[:sales_tax].should == 0
+        end
+      end
+    end
+  end
+end