How to Calculate Sales Tax
Sales tax is an additional percentage added to the cost of goods and services at the point of purchase.
It varies depending on the location and the type of item being purchased. Calculating sales tax accurately is essential for budgeting and financial planning. Try the practice problems at the end of this lesson to see how much you know!
In this lesson, you will learn
- the three steps to calculate the sales tax on an item
- the formulas for the sales tax and the total cost
- how to find the total cost of an item, including tax
Steps to Calculate Sales Tax
To calculate the sales tax of an item, simply multiply the cost of the item by the tax rate. Follow the three steps below:
- Identify the cost of the item: This is the base price before tax.
- Determine the tax rate: This is usually expressed as a percentage.
- Multiply the cost by the tax rate: Convert the percentage to a decimal or fraction before multiplying.
Formula
"Percent" means "out of 100", so 8% = 8100 = 0.08. You can multiply by either one: 50 × 0.08 gives the same $4 as 50 × 8100.
Example Calculation
If an item costs $50 and the sales tax rate is 8%, the sales tax would be:
Sales Tax = 50 × 8% = 50 × 8100 = 400100 = $4
Total Cost = 50 + 4 = $54
Forgetting to divide by 100. 50 × 8 = 400, but the tax is not $400: 8% means 8 out of 100, so 400 ÷ 100 = $4.
A pair of shoes costs $60, and the sales tax rate is 5%. What is the sales tax, and what is the total cost?
Show answer
Tax $3, total cost $63. 60 × 5100 = 300100 = 3, and 60 + 3 = 63.
More Examples Showing How to Calculate the Sales Tax
Exercise #1: You buy a car for $20,000 and pay a 5% sales tax. How much is the tax, and what is the total cost with tax?
1. Calculate Sales Tax:
Sales Tax = 20,000 × 5% = 20,000 × 5100
Sales Tax = 100,000100 = 1,000 dollars
2. Total Cost:
The total cost with tax is 20,000 + 1,000 = 21,000
Answer: The sales tax is $1,000, and the total cost is $21,000.
Exercise #2: You buy a boat for $400,000 and pay a 6% sales tax. How much is the tax, and what is the total cost with tax?
1. Calculate Sales Tax:
Sales Tax = 400,000 × 6% = 400,000 × 6100
Sales Tax = 2,400,000100 = 24,000 dollars
2. Total Cost:
The total cost with tax is 400,000 + 24,000 = 424,000
Answer: The sales tax is $24,000, and the total cost is $424,000.
Exercise #3: You decide to buy a smartphone that costs $750. The sales tax rate in your area is 10%. What is the amount of sales tax you need to pay, and what will be the total cost of the smartphone including tax?
1. Calculate Sales Tax:
Sales Tax = 750 × 10% = 750 × 10100
Sales Tax = 750 × 110 = 75010 = 75 dollars
2. Total Cost:
The total cost with tax is 750 + 75 = 825 dollars
Answer: The sales tax is $75, and the total cost is $825.
- The cost of the item is $45, and the tax rate is 7% = 7100.
- Multiply: 45 × 7100 = 315100 = 3.15, so the sales tax is $3.15.
- Add the tax to the price: 45 + 3.15 = 48.15.
The sales tax is $3.15, and the total cost is $48.15.
A laptop costs $900, and the sales tax rate is 6%. What is the total cost?
Show answer
$954. The tax is 900 × 6100 = 5,400100 = $54, and 900 + 54 = 954.
Summary
- Sales tax is a percentage added to the price of an item when you buy it.
- Sales tax = cost of item × tax rate. Write the rate as a fraction over 100 or as a decimal first.
- Total cost = cost of item + sales tax.
- Don't forget to divide by 100: 8% of $50 is $4, not $400.
Practice: Solve 5 Sales Tax Problems
Problems 1 and 2 guide you through every step. Problem 3 has fewer steps, and problems 4 and 5 give only the key steps. You can skip a problem at any time, and each time you play you get new problems.
Your result
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