How to Calculate Sales Tax

A sales tax is a mandatory amount that the government charges on items purchased by consumers and businesses. The government uses the money obtained from sales taxes for things such as education, health care, road repairs, and transit. Individual stores collect the sales taxes from the consumer and then send them on to the government.

In a few states, what’s taxable in one jurisdiction might not be taxable in another — we’ll get to these home-rule states in a bit. You probably already know that not every state charges sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon don’t — but they often allow “selective sales taxes,” or local taxes on services such as lodging. And in Alaska, the state allows certain jurisdictions to levy their own sales taxes. With sales tax, though, it’s almost never really quite that easy. In the United States, the federal government primarily uses income tax and other taxes to collect revenue, but not sales tax.

Calculating sales tax at time of purchase:

In fact, the oldest written records ever found by archaeologists were simply tax ledgers from ancient Mesopotamia more than 4,000 years ago. These were the first recorded sales taxes in history, called ‘burdens’ by the Sumerians. Next, create a ratio of the sales tax to the how to calculate sales tax pre-tax cost of the items. In order to answer this question, we need to set up an equation such that we are adding the cost of the shirt with some percentage of the shirt’s cost that will equal the final price. Collect an additional $31.92 from the customer for sales tax.

You have to charge the sales tax according to the state your buyer lives in, and you need to send the tax you collect to the destination state. Applications of mark-up are very common in retail settings. The price a retailer pays for an item is called the wholesale price. The retailer then adds a mark-up to the wholesale price to get the list price, the price he sells the item for. The mark-up is usually calculated as a percent of the wholesale price. To determine the amount of mark-up, multiply the mark-up rate by the wholesale price.

Sales Tax Calculation and Formula

Again, these guidelines vary by state, so make sure to check with each state’s taxing authority to find out if the products you sell are taxable. Exact sales tax rates vary widely across different states, counties, and cities. But since most jurisdictions with a sales tax have rates that fall in that 5% to 10% range, simply multiplying sales tax by 3 will get you a respectable 15% to 30% tip.