How to calculate taxes and discounts Basic Concept, Formulas and Examples

You must collect sales tax if your business has a presence in a state that imposes sales tax. Below, learn what sales tax is, which states have the tax, and how to find sales tax rate. A sales tax decalculator is a tool to determine the original price of an item before sales tax was added. It works by removing the sales tax amount from a total to find out the pre-tax price.

  • Certain cities and regions within a state may also have additional sales tax.
  • In general, sales taxes take a percentage of the price of goods sold.
  • These include shop owners and business people, who then further pay the indirect tax to the government.
  • Therefore, the birth of the U.S. had partly to do with the controversy over a sales tax!
  • In the US and the District of Columbia all states except Alaska, Delaware, Montana, New Hampshire and Oregon impose a state sales tax when you buy items or pay for services.

Sales tax didn’t take off until the Great Depression, when state governments were having difficulty finding ways to raise revenue successfully. Of the many different methods tested, sales tax prevailed because economic policy in the 1930s centered around selling goods. Mississippi was the first in 1930, and it quickly was adopted across the nation.

Everything You Need To Master Excel Modeling

There are many different ways to use a sales tax decalculator. For example, some people may opt to perform all the calculations by themselves using an application like Microsoft Excel to keep their accounting in-house. Another consideration is that sales tax may be charged for online sales, depending on whether the seller is considered to have nexus in a state. Generally, for tax purposes, nexus is understood to mean a physical presence, such as a warehouse, office, or employee who resides in the state.

Statology is a site that makes learning statistics easy by explaining topics in simple and straightforward ways. The following examples show how to use each formula in practice. Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.

How to Calculate Sales Tax in Excel (With Examples)

A Sales Tax is different from a Value-Added Tax in that the sales tax is only collected once. Conversely, some products carry special taxes, known as excise taxes. “Sin taxes” are a form of excise tax, such as the local excise tax of $1.50 New York City charges per pack of 20 cigarettes on top of the State excise tax of $4.35 per pack of 20 cigarettes. Your total deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). Another way to avoid sales tax completely is to shop on a tax holiday, which individual states periodically announce to try and boost consumer spending. First of all, if you’re shopping in New Hampshire, Oregon, Montana, Alaska, or Delaware, the sticker price will be the total price.

Alaska, Delaware, Montana, New Hampshire and Oregon all do not have a statewide sales tax, although Alaska and Montana both allow local sales taxes. For many businesses, collecting sales tax is a mandatory part of selling goods and providing services. After collecting sales tax from customers, you are responsible for remitting the tax to your state or local government. But before you start collecting, you need to know how to calculate sales tax.

But first, we use all these formulas to determine a transaction’s pre-tax sale price. Sales tax is a consumption tax paid by consumers at the point of sale. Businesses are then responsible for remitting it to the government. The U.S. is one of the few countries in the world that does not charge VAT.

Further complicating the issues is the fact that the rules of online sales tax vary from state to state. 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. Sales tax is an additional cost for the goods or services you’re selling and is used to support the operation of local and state governments. Knowing how to charge sales tax isn’t always a straightforward process, as the sales tax rules are different at all levels. Some states have a base sales tax rate that local municipalities can add to, while other states have no sales tax at all.

Additional Example of the Sales Tax Calculation

The use of the word nexus in the context of sales taxes refers to the state that you primarily sell from and your connection to the state. For example, you sell your products from a real space that’s located in Illinois. You have a physical connection to the state in the form of an office and a location from where you store and ship your products from. If you’re selling online through a major website, you usually don’t have to do anything towards the collection of sales taxes.

What states have the highest and the lowest sales tax?

You can perform sales tax decalculations through excel or one of the many online platforms that exist. This is especially useful when figuring out what sales tax rate to use if you do not know how percentages work. Looking back at our example from the last section, we know that the sales tax percentage in the state of Maryland is 6%. Now we know the amount paid extra in sales tax on this transaction was $40.75. This is an example of how we can use the Price-before-tax formula to perform sales tax-related calculations.

It is an indirect sales tax applied to certain goods and services at multiple instances in a supply chain. Taxations across multiple countries that impose either a “GST” or “VAT” are so vastly different that neither word can properly define them. The countries that define their “sales tax” as a GST are Spain, Greece, India, Canada, Singapore, and Malaysia. The Sales Tax Decalculator is a method used to determine the pre-tax sale price of an item or service.

Do not collect tax on tax-free items during a sales tax holiday. The sales tax decalculator calculates how much of a transaction price is attributable to sales tax. The most commonly used method is finding an online application that can perform the decalculation for you.


These online platforms are much more convenient and efficient to use. Sales Tax is a tax on consumption where the tax burden is placed on the buyer. After the seller receives the sales tax, they remit it to the government. However, some jurisdictions may have exemptions for certain products like groceries or medicine up to a specific value.

This is important to know for accounting purposes to reconcile the cost of the amount sold and the revenue received from the sale. All of these platforms have useful features for businesses with different budgets. However, you must do your due diligence when researching sales tax calculators to find a platform that can provide refm excel for real estate certification level one the right services for your company. Value-added tax, or VAT, is a tax that’s added at each stage of the production of an item. A product becomes worth more at each stage of its transformation. Ingredients and materials are subject to a tax, then as these items are turned from a raw material into a good, more tax is added.

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