How to calculate how much sales tax you paid

Anyone who’s been shopping in the United States knows that the price on an item isn’t always the total amount you have to pay. Most states have their own sales tax, which can vary from state to state, and sometimes between cities and counties as well. If you’re traveling, it can be hard to predict how much things will cost from at each destination. For businesses, it’s necessary to keep track of sales tax charged, because you're responsible for the collection and remittance of these taxes.

Sales Tax Formulas

Sales taxes are given in percentages of the sale price. For example, a state might charge a 4 percent sales tax, and the county might charge 1.5 percent. Since percent means a portion out of 100, you can then use these rates to back-calculate what sales tax would have been on a bill. The method used depends on which portions of the cost you have available. The team at Calculator Soup explains that the formula for sales tax is:

Sales Tax Amount = Net Price x (Sales Tax Percentage / 100).

Using this example, the total sales tax rate would be 4 + 1.5 = 5.5 percent, meaning that taxes add another 5.5 percent of the sale price onto the bill the customer must pay. Since taxes are a percentage out of 100, divide 5.5/100 to get 0.055 as the tax rate. If you have a sales price and need to calculate the total taxes that will be charged: sales price x tax rate = taxes owed. For example, on an item costing ​$50​, the buyer would owe ($50)x(0.055) = ​$2.75​ owed in taxes. The total bill would be ​$52.75​.

More Sales Tax Calculations

If you have a final cost receipt and need to determine what portion of it is taxes: take the sales tax rate and add 1 to represent the total amount being charged. In this example, this gives 1.055.

Look at the receipt and determine the total final bill price; for this example, let’s say the total bill was ​$100​. Divide the total bill by the total rate to determine the initial sales price: ($100) / (1.055) = ​$94.79​. Then subtract the sales price from the final bill price to determine the amount that was charged as taxes: in this case, $100 - $94.79 = ​$5.21​ charged in taxes.

If you have the sale price and the final cost, and want to determine the tax rate, you can use a reverse sales tax calculator. Alternatively, you may subtract the sale price from the final cost to determine the amount paid in taxes. For this example, let’s say the item cost ​$200​ and the final amount charged was ​$213​, meaning ​$13​ was paid in sales tax. Then, divide the sales tax by the original cost to determine the tax percentage rate. In this case, ($13) / ($200) = 0.065. You can multiply this rate by 100 to determine that in that area, the sales tax is 6.5 percent.

Taxes On Your Receipt

If you have a printed receipt from a store, it’s likely they’ve already separated out the amount charged in sales tax for you. Some stores will print what the sales tax percentage is in that locale as well. If you see a receipt with “Tax 1” and “Tax 2”, the store is probably differentiating tax rates that go to two different government bodies; for example, city and state, or county and state. You can turn to a tax rate calculator for help.

As the team at Thomson Reuters explains, businesses are required to keep track of the taxes they collect, so whether or not taxes are shown together or separate usually depends on the method a business is using to sum up and track their taxes charged. Some systems use the register and receipt, while others might use a spreadsheet.

The Sales Tax Calculator can compute any one of the following, given inputs for the remaining two: before-tax price, sale tax rate, and final, or after-tax price.

What is Sales Tax?

A sales tax is a consumption tax paid to a government on the sale of certain goods and services. Usually, the vendor collects the sales tax from the consumer as the consumer makes a purchase. In most countries, the sales tax is called value-added tax (VAT) or goods and services tax (GST), which is a different form of consumption tax. In some countries, the listed prices for goods and services are the before-tax value, and a sales tax is only applied during the purchase. In other countries, the listed prices are the final after-tax values, which include the sales tax.

U.S. Sales Tax

In the United States, sales tax at the federal level does not exist. At the state level, all (including District of Columbia, Puerto Rico, and Guam) but five states do not have statewide sales tax. These are Alaska, Delaware, Montana, New Hampshire, and Oregon. States that impose a sales tax have different rates, and even within states, local or city sales taxes can come into play. Unlike VAT (which is not imposed in the U.S.), sales tax is only enforced on retail purchases; most transactions of goods or services between businesses are not subject to sales tax.

The sales tax rate ranges from 0% to 16% depending on the state and the type of good or service, and all states differ in their enforcement of sales tax. In Texas, prescription medicine and food seeds are exempt from taxation. Vermont has a 6% general sales tax, but an additional 10% tax is added to purchases of alcoholic drinks that are immediately consumed. These are only several examples of differences in taxation in different jurisdictions. Rules and regulations regarding sales tax vary widely from state to state.

On average, the impact of sales tax on Americans is about 2 percent of their personal income. Sales tax provides nearly one-third of state government revenue and is second only to the income tax in terms of importance as a source of revenue. Reliance on the sales tax varies widely by state. Sales taxes are much more important in the south and west than they are in New England and the industrial Midwest. Florida, Washington, Tennessee, and Texas all generate more than 50 percent of their tax revenue from the sales tax, and several of these states raise nearly 60 percent of their tax revenue from the sales tax. New York, on the other hand, only raises about 20 percent of its revenues from the sales tax.

The following is an overview of the sales tax rates for different states.

U.S. History of Sales Tax

When the U.S. was still a British colony in the 18th century, the English King imposed a sales tax on various items on the American colonists, even though they had no representation in the British government. This taxation without representation, among other things, resulted in the Boston Tea Party. This, together with other events, led to the American Revolution. Therefore, the birth of the U.S. had partly to do with the controversy over a sales tax! Since then, sales tax has had a rocky history in the U.S. and this is perhaps why there has never been a federal sales tax. Some of the earlier attempts at sales tax raised a lot of problems. 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. Today, sales tax is imposed in most states as a necessary and generally effective means to raise revenue for state and local governments.

How to Deduct Sales Tax in the U.S.?

When filing federal income tax, taxpayers need to choose to either take the standard deduction or itemize deductions. This decision will be different for everyone, but most Americans choose the standard deduction. Sales tax can be deducted from federal income tax only if deductions are itemized. In general, taxpayers with sales tax as their only deductible expense may find that itemizing deductions is not worth the time. Itemizing deductions also involves meticulous record-keeping and can be tedious work because the IRS requires the submission of sales tax records, such as a year's worth of purchase receipts. Anyone who plans to itemize should be keeping detailed records, as it will be very helpful in determining the amount of sales tax paid.

After the choice between standard or itemized deductions has been made, taxpayers have to make another decision regarding whether or not to claim either state and local income taxes or sales taxes (but not both). Most taxpayers choose to deduct income taxes as it typically results in a larger figure. With that said, it may be better for taxpayers who made large purchases during the year to deduct sales tax instead of income tax if their total sales tax payments exceed state income tax. Taxpayers who paid for a new car, wedding, engagement ring, vacation, or multiple major appliances during a tax year can potentially have a greater sales tax payment than income tax payment. In reality, less than 2% of Americans claim sales tax as a deduction each year.

For more information about or to do calculations involving income tax, please visit the Income Tax Calculator.

Value-Added Tax (VAT)

VAT is the version of sales tax commonly used outside of the U.S. in over 160 countries. VAT is an indirect tax that is imposed at different stages of the production of goods and services, whenever value is added. Countries that impose a VAT can also impose it on imported and exported goods. All participants in a supply chain, such as wholesalers, distributors, suppliers, manufacturers, and retailers, will usually need to pay VAT, not just the end consumer, as is done with U.S. sales tax. VAT can be calculated as the sales price minus the costs of materials or parts used that have been taxed already.

A 1979 study published by the Tax Foundation offered some insight into arguments for or against VAT as compared to sales tax. Perhaps the greatest benefit of taxation via VAT is that because taxation applies at every step of the chain of production of a good, tax evasion becomes difficult. Also, there are stronger incentives to control costs when all participants involved in a supply chain are taxed. Compared to sales tax, VAT has the ability to raise more revenue at a given rate. On the other hand, VAT tends to be regressive; that is, it takes proportionately greater amounts from those with lower incomes. Also, the cascading tax is harmful to new and marginal business activities, likely to set off inflationary tendencies, and is detrimental to exports. For more information about or to do calculations involving VAT, please visit the VAT Calculator.

Goods and Services Tax (GST)

The Goods and Services Tax (GST) is similar to VAT. 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.

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