How to calculate sales tax

How to calculate sales tax

If your state, county, and city impose a sales tax, you must add all the rates together to get the total rate. For example, you want to find the sales tax rate for Scottsdale, Arizona. Arizona has a state sales tax of 5.6%, Maricopa County has a county sales tax rate of 0.7%, and Scottsdale has a city sales tax rate of 1.65%.

Once you know the sales tax rate you need to collect at, use the sales tax formula to calculate how much to charge the customer.

The amount you collect for sales tax depends on the percentage you collect at and how much your customer spent on products or services. For example, a customer who bought $1,000 worth of products will pay more sales tax than a customer who bought $100 worth of products.

Use the following formula to calculate sales tax:

How to calculate sales tax

To determine how much sales tax to charge, multiply your customer’s total bill by the sales tax rate.

Example

Let’s say your business is located in Cleveland, Ohio. You don’t have a secondary business location. You must collect sales tax at Cuyahoga County’s rate of 8.00% (state sales tax of 5.75% + Cuyahoga County rate of 2.25%; Cleveland does not have a city sales tax). Your customer’s bill before adding sales tax is $399.

Sales Tax = $399 X 0.08

Sales Tax = $31.92

Collect an additional $31.92 from the customer for sales tax. Then, remit the sales tax to the appropriate government. Contact the state for more information.

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This is not intended as legal advice; for more information, please click here.

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Example

A car costs $5,400 and the sales tax rate is 8.4%. How much is the total cost of the car after tax?

Step 1:

Convert the tax rate to a decimal by moving the decimal two places to the left and removing the percent symbol. Our multiplier then becomes .084.

Step 2:

Multiply .084 by 5,400 to get 453.60. $453.60 is the amount of tax you’ll be paying on the car.

Step 3:

Add your tax to the price of the car for the total price of the car. 453.60 + 5,400 = $5853.60

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