Common sales tax questions
How to calculate sales tax
The sales tax formula is straightforward and takes a few short steps.
Step 1: Find your sales tax rate and turn it into a decimal.
Look up the sales taxes applicable in your area. You’ll need to combine the state sales tax rate and local sales tax rate, if applicable.
Then you turn the combined tax rate into a decimal by dividing it by 100.
Sales tax as decimal = Sales tax rate / 100
Step 2: Find the net price of a product.
The net price is the price the customer sees before checking out, aka the retail price. When an item goes on sale, the net price is the same as the discounted price, aka the sales price.
Step 3: Calculate the sales tax.
Now you multiply the net price by the tax rate to get the sales tax. The formula looks like this:
Sales Tax = Net Price x Tax Rate
Let’s look at an example sales tax calculation. Our combined sales tax rate is 7.37%, so we turn that percentage into a decimal:
0.0737 = 7.37% / 100
The net price of our product is $55. Now we can plug everything into our formula (rounding to the nearest one-hundredth):
$4.05 = $55 x 0.0737
So we can see the sales tax owed by the consumer for purchasing our product is $4.05.
Calculate the gross price
The gross price is the total cost of a purchase with tax included. To total the sale, you need to add the sales tax to your net price. Using the above example, it looks like this:
$59.05 Gross Price = $55 Net Price + $4.05 Sales Tax
You can condense these steps and calculate the gross price right away by using this formula:
Gross Price = Net Price x (1 + Tax Rate Decimal)
Let’s plug in the values from the same example to see this in action:
$59.05 Gross Price = $55 Net Price x (1 + 0.0737 Tax Rate Decimal)
There you have it: everything you need to calculate sales tax. Remember that you can do all these calculations instantly with our free sales tax calculator
What is the sales tax rate?
Your sales tax is made up of state and local taxes. Most states have a base, statewide sales tax that raises funds for the state government. The amount of sales tax charged changes from state to state. Local jurisdictions can issue a local tax on purchases to raise funds for the local government. So taxes differ within each state, too. Sales tax laws are levied on the state level, and many smaller tax jurisdictions (counties or cities) are also given the power to tax. Some tax laws provide sales tax exemptions based on the buyer. Charitable organizations are often tax-exempt. Some states and local jurisdictions make exemptions based on the goods sold. 31 states, for example, don’t charge sales tax on most grocery items.
How do I find my sales tax rate?
Retail sales are subject to sales tax based on where the product is sold. If a seller sells in a physical store, that means they charge the sales tax applicable to their ZIP code. To find your sales tax, you’ll need to combine your state and local sales tax rates.
Sales tax rates for online sellers
Online sellers calculate sales tax based on the customer’s street address. That’s usually done in the checkout process.
45 states plus the District of Columbia charge an online or internet sales tax. The following five do not:
- New Hampshire
What’s the difference between sales tax vs. value-added tax (VAT)?
A VAT is a consumption tax assessed on goods throughout the stages of production. The cost is passed seller-to-seller until it finally reaches (and is paid by) the consumer. A sales tax is paid once by the consumer at the time of the transaction. Many countries use VAT, but the United States does not.
What is an economic nexus law?
An economic nexus law enforces sales tax compliance on out-of-state businesses transacting within their state. But ultimately, it’s a tax on the taxpayer within the state. The business is only responsible for ensuring the sales tax charged to the consumer is paid to the taxing body.