diff --git a/app/models/spree/adjustment_decorator.rb b/app/models/spree/adjustment_decorator.rb
index b9b89cde6a..836080183c 100644
--- a/app/models/spree/adjustment_decorator.rb
+++ b/app/models/spree/adjustment_decorator.rb
@@ -7,8 +7,13 @@ module Spree
 
     attr_accessible :included_tax
 
-    def set_included_tax!(fraction)
-      update_attributes! included_tax: (amount * fraction).round(2)
+    def set_included_tax!(rate)
+      tax = amount - (amount / (1 + rate))
+      set_absolute_included_tax! tax
+    end
+
+    def set_absolute_included_tax!(tax)
+      update_attributes! included_tax: tax.round(2)
     end
   end
 end
diff --git a/app/models/spree/tax_rate_decorator.rb b/app/models/spree/tax_rate_decorator.rb
index f8a0333ce2..e41c20db70 100644
--- a/app/models/spree/tax_rate_decorator.rb
+++ b/app/models/spree/tax_rate_decorator.rb
@@ -3,7 +3,7 @@ Spree::TaxRate.class_eval do
     adjust_without_included_tax(order)
 
     (order.adjustments.tax + order.price_adjustments).each do |a|
-      a.set_included_tax! 1.0
+      a.set_absolute_included_tax! a.amount
     end
   end
 
diff --git a/spec/models/spree/adjustment_spec.rb b/spec/models/spree/adjustment_spec.rb
index 44d3cab868..acd0fa64ac 100644
--- a/spec/models/spree/adjustment_spec.rb
+++ b/spec/models/spree/adjustment_spec.rb
@@ -62,7 +62,11 @@ module Spree
           end
 
           it "takes the shipment adjustment tax included from the system setting" do
-            adjustment.included_tax.should == 12.50
+            # Finding the tax included in an amount that's already inclusive of tax:
+            # total - ( total / (1 + rate) )
+            # 50    - ( 50    / (1 + 0.25) )
+            # = 10
+            adjustment.included_tax.should == 10.00
           end
 
           it "records 0% tax on shipments when shipping_tax_rate is not set" do
@@ -75,12 +79,12 @@ module Spree
         end
       end
 
-      describe "setting the included tax by fraction" do
-        let(:adjustment) { Adjustment.new label: 'foo', amount: 123.45 }
+      describe "setting the included tax by tax rate" do
+        let(:adjustment) { Adjustment.new label: 'foo', amount: 50 }
 
         it "sets it, rounding to two decimal places" do
-          adjustment.set_included_tax! 0.1
-          adjustment.included_tax.should == 12.35
+          adjustment.set_included_tax! 0.25
+          adjustment.included_tax.should == 10.00
         end
       end
     end