# How to Calculate Sales Tax Definition, Formula, & Example

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. Sales tax is a type of tax that’s charged at the time an item or service is sold.

The most common way for governments to raise money is through taxes. Taxes are mandatory fees that are applied to money, property, goods, or services. For example, some states do not enforce sales tax on food products. And, most states do not charge sales tax on prescription medicines. Now, we need to multiply the pre-tax cost of this item by this value in order to calculate the sales tax cost.

## California sales tax rates by city.

She has heard of sales tax but she isn’t quite sure how it works. Let’s see if we can help Melissa calculate the sales tax on her purchase to ensure she has enough money to pay for it. It’s good practice to look at the sales tax collection requirements for your home state and any state you plan to sell in, especially when you’re starting a business. The following formula can be used to calculate the original price of an item given the sales tax % and the final price of the item. Sales tax rate is given as a percentage, but for calculation purposes it’s usually easier to first convert the rate into decimal form.

• The total amount of taxable sales times the sales tax rate equals the sales tax amount.
• You, as a seller, may not be required to collect sales taxes because you don’t sell enough to reach a sales threshold set by the state.
• Generally, your state will designate certain items that are tax free.
• VAT is the version of sales tax commonly used outside of the U.S. in over 160 countries.
• Some states have a base sales tax rate that local municipalities can add to, while other states have no sales tax at all.
• 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.
• The two previous steps can be combined using a little trick about percentages.

If you don’t know the rate, download the free lookup tool on this page to find the right combined California state and local rate. The minimum combined sales tax rate for New York City, New York is 8%. There are over 10,000 sales tax jurisdictions in the United States. And the sales tax rate you how to calculate sales tax charge depends on your buyer’s shipping address. For example, the sales tax rate in Atlanta, GA is 8.9%, but the sales tax rate just outside the city limit is 7%. To collect sales tax when selling online, you must determine if your customer lives within the Atlanta city limits or outside them.

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Countries and localities each have their own sales tax policies and rates that may differ for various types of goods and services. All governments must generate revenue of some kind to pay for the services they provide, like road maintenance, healthcare, education, fire, and police. It also needs funding for the costs of governing, such as government employee salaries, property leases, and general operating expenses.

• 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.
• Once you’ve calculated the total amount of tax, you add that to the purchase price to get the total price of the item you’re selling.
• It also works in reverse – to convert a decimal to a percentage, move the decimal point two places to the right and add the percent symbol.
• The Sales Tax Institute keeps an updated list of the range of sales taxes in every US state.
• To calculate the sales tax in dollars, simply multiply the purchase price by the sales tax rate.
• You must calculate backward to find out how much money actually went toward the sales tax.
• If you sell products to customers who turn around and sell the same product to customers, you might not need to collect sales tax.