# How to Round Sales Tax

••• 3D dollar sign with multiple smaller dollar signs. image by Steve Johnson from Fotolia.com
Share It

The majority of states in the U.S. and the District of Columbia charge retail sales tax. If you are a consumer, you should know how to calculate tax just to be informed. Business owners should also be aware of how rounding tax works, even if they usually rely on their cash registers or accounting software to do the calculations for them.

## Sales Tax Overview

Income taxes can be confusing to the general public, with the different tax brackets and deductions and credits available to taxpayers. Retail sales taxes, which are levied when a consumer wants to buy something, are much simpler to understand. These taxes are charged based on the value of the invoice. In many cases, the consumer can see how much tax they are being charged on their bill.

This is not always the case, though. Some sales tax is hidden from consumers, such as in the case of federal and state taxes included in the prices of gasoline, alcohol or cigarettes. They are included in the price, instead of being added on when a customer buys these items. Either way, the tax portion is forwarded to the government.

## State and Local Sales Tax

Only ​five​ states do not charge sales tax:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

Alaska allows local areas to collect their own sales taxes. It is the only state without sales tax that allows local sales taxes, according to the Tax Foundation.

## States with the Highest Combined Sales Tax Rates

When you add the local and state sales taxes, you will pay the highest rates in:

1. Tennessee (​9.53 percent​)
2. Louisiana (​9.52 percent​)
3. Arkansas (​9.47 percent​)
4. Washington (​9.21 percent​)
5. Alabama (​9.22 percent​)

## States with the Lowest Combined Sales Tax Rates

1. Alaska (​1.76 percent​)
2. Hawaii (​4.44 percent​)
3. Wyoming (​5.34 percent​)
4. Wisconsin (​5.46 percent​)
5. Maine (​5.50 percent​)

## Example 1: Rounding Sales Tax

A customer in Kentucky buys paint and other items totaling \$35.68 at a hardware store. All items are subject to state sales tax of 6 percent, and there is no local sales tax. You would calculate the sales tax on the purchase like this:

Multiply the total charges by the sales tax rate, expressed in decimal form.

(35.68)*(0.06) = \$2.1408

Next, look at the sales tax calculated to the third decimal. Since the “0” in 2.140 is less than a half-cent (lower than five), you round down. The amount of sales tax payable is \$2.14 and the total purchase is \$37.82 (\$35.68 + \$2.14).

## Example 2: Rounding Sales Tax

How much is the combined sales tax on a purchase of \$75.92 made in Alabama, where the state tax rate is 4 percent and the purchase was in an area charging 5.22 percent in local sales tax (the average rate)?

First, you add the two sales tax rates together (4 + 5.22 = 9.22). Then, you multiply the total charges by the sales tax rate, expressed in decimal form.

(75.92)*(0.0922) = \$6.9998

The sales tax calculated to the third decimal is \$6.999. The third number “9” is higher than a five so you would round it up to the next penny. The correct sales tax calculation in this instance is \$7. The total amount for this purchase is \$82.92 (\$75.92 + \$7).