How to Add and Remove Sales Tax From a Price (With Examples)

Sales tax questions come in two forms. Before a purchase you ask what the total will be. Afterwards, looking at a receipt, you ask how much of it was tax. The two answers use different formulas, and mixing them up is the most common mistake.

Adding sales tax to a price

Sales tax is a percentage of the price before tax. To find the total, multiply the price by one plus the rate written as a decimal.

Total = price × (1 + rate ÷ 100). The tax itself is price × rate ÷ 100.

Example: a $49.99 item with 8.25% sales tax. The tax is $49.99 × 0.0825 = $4.12, and the total is $54.11. The Sales Tax Calculator shows the price, the tax and the total together.

Removing sales tax from a total

Now suppose the receipt says $54.11 and you want the price before tax. The tax was calculated on the smaller, pre-tax price, so you cannot just take 8.25% off the total.

Price before tax = total ÷ (1 + rate ÷ 100).

$54.11 ÷ 1.0825 = $49.99, and the tax is $54.11 − $49.99 = $4.12. Subtracting 8.25% instead gives $49.65, which is 34 cents too low.

The same maths for VAT

Value-added tax works the same way, except that in many countries shop prices already include it. A tax-inclusive price of 120 with 20% VAT contains 100 of net price and 20 of VAT. Dividing 120 by 1.20 gives the 100; subtracting 20% of 120 would give 96, which is wrong. For the invoice split used in India, see how GST and VAT are calculated.

Several items and rounding

For identical items, work out one unit and multiply, or use the quantity box in the calculator. For three items at $19.99 each with a 7% rate, the total price before tax is $59.97, the tax is $4.20 and the total is $64.17.

Rounding is the small difference you may see between your calculation and a receipt. Shops may round the tax on each line, or on the whole bill, and the two methods can differ by a cent or two. A receipt is the final figure.

Why you must enter your own rate

There is no single sales tax rate. In the United States, rates depend on the state, the city and sometimes the county, and some goods such as certain foods or clothing are taxed at a lower rate or not at all. Other countries have a national rate with reduced rates for specific goods. A calculator that guesses a rate would go out of date, so the tool asks you for it and applies exactly what you enter.

• Look up the combined rate for the place where you buy, not just the state rate.
• If a receipt shows tax separately, you can compute the effective rate: tax ÷ price before tax × 100.
• Goods taxed at different rates on one bill need to be calculated separately.

A worked reverse example

You paid $86.40 for a meal and know the rate is 8%. The price before tax is $86.40 ÷ 1.08 = $80.00 and the tax is $6.40. If you also want to tip on the pre-tax amount, 18% of $80 is $14.40, and you can compute it with the Percentage Calculator.

Mistakes to avoid

1. Subtracting the rate from the total instead of dividing by one plus the rate.
2. Using a state rate when a local rate also applies.
3. Applying one rate to a bill that mixes taxable and exempt items.
4. Calculating a discount after tax when the shop applies the discount first. The Discount Calculator adds tax after the discounts, which is the usual order.