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How to Calculate Sales Tax
Sales tax is an unavoidable part of most purchases, but understanding how it's calculated can help you plan your finances more effectively. There are two main elements you need to understand when calculating sales tax: the tax rate and the price of the item or service.
Step 1: Find the Tax Rate
The sales tax is usually a percentage of the purchase price, based on the location and type of item. Rates can vary significantly between states, counties, and even cities, so you'll need to double-check what the tax rate is in the area where you're making the purchase.
Step 2: Calculate the Cost
Once you know the rate, you can calculate the total cost of the item or service. To do this, multiply the item's price by the sales tax rate. For example, if you're buying an item with a price of $100 at a 5% sales tax rate, multiply 100 x 0.05 (5% expressed as a decimal) to arrive at a sales tax cost of $5.
Step 3: Add Sales Tax to the Price
To get the total cost of the item, combine the original price and the sales tax. In the example above, if the item was originally priced at $100, then the total cost would be $105. This number is the final price, including sales tax.
Step 4: Calculate the Price Without Tax
If you’re trying to calculate how much the item is without the tax, you can use the opposite calculation. To do this, divide the total cost by the tax rate plus 1. Continuing the example above, divide the total cost of $105 by 1.05 (5% expressed as a decimal plus 1) to arrive at a price for the item of $100.