Sales Tax: how to calculate?

What Is Sales Tax?

In simple words, sales tax is a little extra the buyers pay when they purchase something in the store. If your item costs $1, the sales tax makes the price go higher up to $1.09 or $1.04 or something along these lines depending on where you purchased that item. However, sales tax might not be as bad. That extra coin you pay goes towards paying all the extra stuff you enjoy as a citizen, like clean roads, fun water parks, public schools, and free books in your local library. If you are a business owner and sell shirts, shoes, and accessories, you have to charge the customer for these items. In addition to the price you set for these goods, you will also be charging the customer sales tax (with some exceptions, like operating in states with no sales tax). Being able to compute the sales tax on any item is important. Sellers are required by law to collect sales tax from the customers kind of on behalf of the state and/or local authorities because the money they take on top of the cost of the product they sell should be transferred to the state. Accordingly, you need to know not only how much you should get from your customers, but also how much you will owe the state. If you are on the other side and buying something, it is always good to know in advance how much something will cost you, so you can plan your finances accordingly. Keep in mind that taxes are percentage-based, so the dollar amount you owe in sales taxes grows in proportion with an increase in price.


How to calculate sales tax? First of all, we would like to start by stating that tax rates vary based on what location you make the sale/purchase in. Moreover, the rates not only vary from state to state, but some states choose not to impose any sales taxes. Since there are no sales taxes on the national level, the buyer might not need to pay any sales taxes. At the same time, there might beg local sales taxes, which should be paid on top of the state taxes, if any. Now that we cleared some of the basics, there is not much to the computation process. Although tax rates are not the same, the very process of calculating the sales tax that will appear on the receipt, which the buyer will pay and a business owner should charge its customers is always the same. Calculating taxes are “percent of” questions, which means that you will be multiplying the number you see on the price tag of an item by the applicable tax rate. of course, if you know math basics, then you know that the tax rate should be converted from the percentage form it is presented into the decimal. Then, it comes down to math that you can do in your head or use a basic calculator. Let’s go over an example to make things more clear.


You went to a store and saw a watch that you like for $269. Unfortunately, you have only $300 cash in your pocket. Will this be enough to pay for the watch if the state sales tax is 6% and local county sales tax is an additional 2.5%? First, we can say that the total sales tax you would be paying is 8.5%. To be able to do the calculation, you would turn it into a decimal form by moving the point to the left two numbers, which would give you 0.085. To find the tax from sales, you would be paying on top of the price, you simply need to multiply 0.085 by the price tag on the watch. So, you would have $269 x 0.085 or $22.87 in sales taxes. If you add this amount to the price you would need to pay for the watch, it will turn out that the watch will actually cost you $291.87. It looks like you can buy it with the cash you have on hand, but if the sales tax was a bit higher, this might not have been the case.If you are not the seller or buyer who wants to know how to calculate sales tax separately and simply want to find the final total cost, you can calculate it in a different and faster way. We can say that the price of an item is equal to 100% and the sales tax is the percentage on top of this 100%. In other words, you are paying 108.5% of the watch price. So, you can simply multiply $269 by 1.85 to get $291.87, which is the same amount you arrived at for the total using a different method of calculation. You can apply the same logic to a total of several items you are buying and get either the tax amount separately or compute the final receipt total.

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