Sales Tax Calculator
Cost of an item matters a lot for a consumer; tap to see what is sales tax and how to use a sales tax calculator!
The cost of an item matters a lot for a consumer as money doesn’t grow on trees. The price factor is not as simple as it seems because when you go deeper you hear about several directly or indirectly related terms including sales tax. The sales tax is alarming for their expansion happening significantly. In this article, I’ll talk about the sales tax calculator, the economic side, and the perspective of the United States, so stay tuned!
Sales Tax Calculator
What is Sales Tax?
Sales tax is the amount of money you pay to the government on purchasing certain products or services. When a buyer pays money for something, it goes to the vendor as a general layout, while it fluctuates along the different regions of the world. In some countries, the sales tax is considered in different terms like goods (products) and services tax or GST, value added tax or VAT, etc. Similarly, the price tag on a particular product is a before-tax value in some countries, while in other states the tag is wholesome of all taxes the consumer has to pay.
United States Sales Tax
From the perspective of the USA, the sales tax exists at the state level like the District of Guam, District of Puerto Rico, and District of Guam): however, there are five exclusions or states that do not charge sales tax including the State of Alaska, Montana, Oregon, Delaware, and Hampshire. Now the states that impose taxes have distinctive regulations and rates that also vary with cities and locals.
In the United States, the sales tax is imposed on retail products which means the sale and purchase between businesses are free of sales tax. Plus, there is a VAT (value-added tax) term that exists in the market of the United States. As I said before, the rate of sales tax varies between states as well as the kind of product or service, but as a general idea, the range of sales tax is 0 to 16 percent.
For example, in Texas State, the sales tax on food seeds and prescribed medicines are six-percent, while on buying alcoholic drinks you need to pay a ten-percent tax as an addition. This is only one example; there are several other products and services which have different rules, regulations, and tax rates. In a nutshell, the sales tax varies enormously within states of the United States.
The sales tax also impacts the personal income of a buyer, and in the case of the United States, this impact is limited to two percent. Sales tax generates one-third of the total revenue of the state government, so it is of great significance. While these estimations are variable and average, Florida, Texas, Washington, and Tennessee generate more than half of the total tax revenue from sales tax but New York raises no more than twenty percent of the total revenue.
How To Deduct Sales Tax In The U.S.?
You have to choose from standard and itemize deductions first, whereas most Americans go for standard ones. However, that doesn’t mean any restrictions as you’re free to choose from both. Sales tax can also be excluded or deducted from the income tax in case of itemized deductions. The itemizing deductions include record-keeping related to submission, payment, and everything, so a citizen who is planning to itemize the tax should know all the records in detail, while there is no such case with the standard.
Once you have confirmed your side between the standard deduction and itemized deduction, it's time for a second decision in which you have to either claim or not claim the local sales tax or income tax or state sales tax or income tax. Please remember that you cannot claim both. Mostly, the payers choose income tax deduction instead of sales tax because of its large figure.
Who Should Collect Sales Tax?
A business that is wide enough that it has proper office buildings, warehouses, employee structure, and systematic processing in a state can collect sales tax. However, there is the possibility that your company sells products in a state where it is not physically present but it possesses the criteria of being an organization mentioned above and can also receive sales tax. In this case, you need to collect the tax amount from that particular state. Again, every state has different rules and regulations for transactions and liability, so you should check that too.
In the other scenario, if your company is doing business with a consumer, proper certificates and official documentation are needed as proof of tax exemption. Now, these documentation rules and requirements vary among different states where some have straightforward systems while others have complex scenarios. That’s all for sales tax detailing, now see how to calculate the sales tax:
Calculator Use
To calculate the sales tax, a sales tax calculator is designed that finds out the rate. You need to enter the price of the item and tax rate in percentages to get the sales tax in numbers and the total cost of the product. The ideal way to find out the sales tax is as follows: multiply the price of your product by the rate of tax. In case you have a value in percentage, divide the entire value by 100 to get the rate in decimal and then use the obtained value in the multiplication method I explained behind.
Don’t sweat it out! Finding the tax percentage and price is not a big deal. All you need to do is to divide the tax (percentage tax) by 100 (% = 100) to get the value in decimal, now multiply the obtained value with the price to get the sales tax amount. Let me explain this with an example:
You are purchasing a coffee maker that costs $70; according to your state laws, the sales tax is 6.5 %. Divide the tax by 100 to convert the percentage value to the decimal value and you’ll get 0.065. Now multiply the obtained value by the cost of coffee make (70 x 0.065) and you’ll get the sales tax amount, which is $4.55. In simple words, you need to pay $4.55 sales tax on purchasing a $70 coffee maker. So, the total price of a coffee maker as per your state taxing rules is $74.55.
Sales Tax Calculation Formulas
To explain the above-mentioned calculations more, I am adding the formulas for calculating the sales tax. These formulas are like the rule of thumb; there is no need to rush yourself with complicated things; put in the values and calculate sales tax, sales tax rate, total price including or excluding tax, and more. Let’s discuss:
If you want the sales tax rate, divide the sales tax percentage value by 100: sales tax rate = sales tax (percentage value) ÷ 100. For sales tax value, the formula is as follows: sales tax = sales tax rate x list price. Once you have calculated the sales tax, you can find out the total price including tax by adding sales tax to the list price of the product: total price = sales tax + list price.
Economic Implications
The sales tax system has a significant impact on the overall economy and businesses because it contributes to the gross domestic product or GDP of a state or country. The sales tax increases the pricing and affects the economic factors, consumers, builders, and the entire system. It will be right to say that taxing is a chain-based scheme that involves different sectors. For example, an increase in sales results in an inflation rate which directly impacts the economy and GDP of a state.
Why Sales Tax Is Important?
The sales taxes bring different benefits to the citizens of the country, the economy, and business personnel. The sales tax is imposed on citizens according to their monthly or yearly income; for instance, a person who earns $100000 yearly will pay less tax than a person whose yearly income is $1000000. Also, the scenario is quite straightforward, as there are different standard rates set by each state and people follow and pay accordingly.
The primary benefit of sales tax is the revenue; as discussed before, it is the small amount collected by each citizen to generate high revenue for the state government. People are paying taxes for different products or services and the cost is directly going to the state’s account and is re-utilized for the benefit of citizens, so it's like a cyclic process. Likewise, sales taxes are considered as best for helping poor and low-income citizens of a state.
In addition, the sales tax can be used for a lot of purposes as it is a huge amount; for example, education, tourism, transport, or any sector of a state or country that needs development or improvement. Collecting the sales tax is super easy because it is included in the net price of a product or service and generated automatically when buyers make a purchase. There is no separate column or collection which is why the process is pretty straightforward and simple.
FAQs
How do I calculate sales tax backward from the total?
You have to subtract the total cost from the gross price to find out the tax value. Now divide the tax value by the total cost and multiply the result by 100 to get the sales tax backward. I found the backward method difficult, you can also calculate sales tax by this method: divide the tax (percentage tax) by 100 (% = 100) to get the value in decimal, and now multiply the obtained value with the price to get the sales tax amount.
How do I know if my business is required to collect sales tax?
In general, a business that is wide enough that it has proper office buildings, warehouses, employee structure, and systematic processing in a state can collect sales tax. However, there are many authentic ways to inaugurate the nexus (linkage between state and company to fulfill the tax collection criteria). There is a possibility that your business is not physically present in that state but that doesn’t mean you can’t collect sales tax. In my opinion, it is important to see your state rules to know more.
What states don’t have sales tax?
There are five exclusions or states that do not charge sales tax including State of Alaska, Montana, Oregon, Delaware, and Hampshire. However, the States of Montana and Alaska imposed sales taxes on a local level, while the State of Delaware has rules for gross receipts on companies. Also, there are some other states which impose zero sales tax on food and beverages.
Conclusion
Sales tax is imposed by the government of a state or country on goods and services, and the generated amount is of great significance because it can be utilized for many purposes. There is a set of rules and regulations for sales taxing and the cycle varies greatly among different countries, so I piled up the discussion and covered several topics including what is sales tax, who should get the sales tax, and how to calculate the sales tax.
The cost of an item matters a lot for a consumer as money doesn’t grow on trees. The price factor is not as simple as it seems because when you go deeper you hear about several directly or indirectly related terms including sales tax. The sales tax is alarming for their expansion happening significantly. In this article, I’ll talk about the sales tax calculator, the economic side, and the perspective of the United States, so stay tuned!