How to Remove GST From a Total

There is no point in looking for the GST removal formula unless you understand how it works.

Generally, Goods and Services Tax (GST) refers to an indirect flat-rate tax applied on goods and services in some U.S, states as a way of raising local revenue. It is usually applied at the point of consumption, rather than the point of production. And the businesses that sell to consumers are responsible for remitting these taxes to the government.

GST is sometimes referred to as sales tax. And it can be applied on both tangible and intangible goods.

GST Taxes by State

In the U.S., GST, which takes the form of sales tax, varies depending on the state and municipality. The tax is present in some form in all states but​ five. These include:

  • Delaware
  • Oregon
  • Alaska
  • New Hampshire
  • Montana

It is worth noting that many states also charge local sales taxes in addition to the state-wide GST taxes. And that includes Alaska, which does not charge GST at state level.

The state sales tax rates vary from ​2.9 percent to 7.25 percent​. And those that charge additional local taxes have rates that vary from ​0.25 percent to 5.22 percent,​ depending on location.

GST in Canada

If your goods and services are headed to Canada, you need to remember that the country charges GST. Currently, businesses pay an average of ​five percent​ GST at federal level.

However, there are additional local taxes charged at the provincial level. And these harmonized sales tax (HST) rates may be ​eight or 10 percent​. In provinces where the latter rates don’t apply, the total sales tax rates may be higher or lower than what is stated.

For example, Saskatchewan has a ​six percent​ local sales tax, while Quebec province has one that is ​9.975 percent​. Therefore, you need to know what GST rules apply in your business case.

How to Remove GST from A Price

Regardless of whether you own a business or are a consumer, it helps to know how the GST removal formula works. That way, you can understand the basic price of goods and services before taxation and determine its true value if sales taxes were not under consideration.

The easiest way is to use a GST removal calculator, which will do the work for you. But you can also calculate it manually.

GST Amount = Original Cost – (Original Cost x [100/ (100+GST Rate])

Net Price = Original Purchase Cost – GST Amount

GST Removal Formula Example

Suppose you bought a product for $300 and the total sales tax in that locality is ​7.5 percent​.

In that case, the ​original price is $300​ and includes the GST. So, it represents ​107.5 percent​. To find the pre-GST price, you can ​multiply 100 percent by $300​ and divide it by ​107.5 percent​ – the result is approximately ​$279.07​. Therefore, the GST amount is ​$300-$279.07​, which equals ​$20.93​, and that is the estimated amount you are paying as sales tax.

On the other hand, if you have the GST amount and the original cost, you can calculate what your net price would be prior to adding the sales tax. In this case, your net price is ​$300-$20.93​, which ​equals $279.07​. You can confirm this by calculating the GST tax rate of ​7.5 percent​, which would lead to a final price of ​$300.00025​.

Once you understand how the GST removal formula works, you can use it to find the missing numbers, depending on the information that you have available. It is excellent information to have regardless of whether you are a consumer or business person. You just never know when you will need to use it to calculate sales taxes.