A sales tax is levied by 45 of the 50 states on goods and services that are bought at the retail level. The customer pays the sales tax, which is often a percentage of the retail cost. The seller – whether merchant or service provider – collects the tax from the sale, then submits it for payment to the state.
The rate of this sales tax depends on your location. The five states without a sales tax are Alaska, Delaware, Montana, New Hampshire and Oregon. On the other hand, the cities with the highest combined state and local sales tax rates are Chicago, Illinois and Long Beach, California at 10.25 percent. Online sales tax, meanwhile, remains a topic of ambiguity and debate. But how would one go about calculating sales tax? You can use simple sales tax math to better understand what you are being charged.
Understanding Sales Tax in Your State
Sales tax rates differ across the nation. Certain websites provide information the current sales tax rates by state, city, jurisdiction and even ZIP code. Each state government’s website can be searched for current information on the sales tax levied by ZIP code, municipality and even city.
For example, take the state of Illinois’ government website where a Tax Rate Database helps you find the rates of the current year. Chicago, for instance, has a combined sales tax as of 2018 of 10.25 percent. Of course, there are certain jurisdictions that may administer taxes that are not collected by a state’s department of revenue. For this reason, it is often best to contact a municipal or county clerk office to get more information. Of course, another simpler way to find out the sales tax for an area is to go to a retailer and make a purchase. On the receipt, the tax rate should be itemized, and it often reflects the state tax rate combined with the county and local municipality's specific amounts added in for the levy.
Finding Sales Tax Formulas
To calculate the amount of sales tax using a taxable income formula, simply multiply the total amount of the sale by the sales tax percentage. For example, say a customer purchases $150 of taxable goods in a Chicago store, and the tax rate for Chicago is 10.25 percent. First, convert the percentage value into a decimal value, so that 10.25 percent becomes 0.1025. Then, to calculate the sales tax formula:
$150 x 0.1025 = $15.375, which can be rounded up to $15.38.
This value becomes the total tax on the transaction, which is then added to the purchase price of $150. Therefore, the total cash that the purchaser pays the retailer at the register is as follows:
Before-Tax Price + Sales Tax Amount = After-Tax Price, or
$150 + $15.38 = $165.38
Note that the $150 becomes the retailer’s gross, while the $15.38 is paid by the retailer to the state.
- Stanford University: Sales and Use Tax
- Minnesota State University, Moorhead: Basic Percent Equation
- GuamTax.com. "Guam Tax Structure." Accessed April 24, 2020.
- Tax-Rate.org. "The 2020 Puerto Rico State Sales Tax." Accessed April 24, 2020.
- Tax Policy Center. "The State of State (and Local) Tax Policy." Accessed April 21, 2020.
- North Carolina Department of Revenue. "Sales and Use Tax Rates Effective April 1, 2019." Accessed April 21, 2020.
- Pitt County Development Commission. "Taxes: Pitt County, North Carolina." Accessed April 24, 2020.
Mariecor Agravante earned a Bachelor of Science in biology from Gonzaga University and has completed graduate work in Organizational Leadership. She's been published on USA Today, Medium, Red Tricycle, and other online media venues.