Sales Tax Calculator

Sales tax definition

A sales tax is a consumption tax paid to the government when specific products and services are sold. Sales tax is typically taken from the customer as soon as they purchase by the vendor. Value-added tax (VAT) or goods and services tax (GST), a different kind of consumption tax, are the names for the sales tax in most countries. In some nations, the quoted prices for products and services represent their pre-tax cost; sales taxes are only levied at the time of purchase. The indicated prices are the final after-tax values, which include the sales tax, in other countries.

American Sales Tax

The federal level of sales tax does not exist in the United States. Only five states, including the District of Columbia, Puerto Rico, and Guam, have statewide sales taxes at the state level. These are Oregon, Alaska, Delaware, Montana, and New Hampshire. There are varying rates for sales taxes in each state, and even within states, local or city sales taxes may apply. Sales tax is solely used for retail purchases, not for most business-to-business exchanges of goods or services, unlike VAT, which is not imposed in the United States.

States have a great deal of variation in their sales tax laws and regulations. Depending on the state and the kind of commodity or service, the sales tax rate can range from 0% to 16%, and each state has a different system for enforcing the tax. Food seeds and prescription medications are tax-free in Texas. The average sales tax in Vermont is 6%. However, purchases of alcoholic beverages immediately consumed are subject to an extra 10% tax. These are just a few examples of how taxes are handled differently in various jurisdictions.

Americans are typically subject to a sales tax that takes 2% of their income. Sales tax is the second most significant revenue source for state governments after income tax, contributing close to one-third of their total income. States differ significantly in how much they rely on the sales tax. Compared to New England and the industrial Midwest, sales taxes are considerably more significant in the south and west. More than half of the tax revenue in Florida, Texas, Tennessee, and Washington come from the sales tax, and several of these states get close to 60% of their tax revenue from this source. However, only roughly 20% of New York's total revenue comes from the sales tax.

The following is an overview of the sales tax rates for different states.

State General State Sales Tax Max Tax Rate with Local/City Sale Tax
Alabama 4% 13.50%
Alaska 0% 7%
Arizona 5.60% 10.73%
Arkansas 6.50% 11.63%
California 7.25% 10.50%
Colorado 2.90% 10%
Connecticut 6.35% 6.35%
Delaware 0% 0%
District of Columbia 6% 6%
Florida 6% 7.50%
Georgia 4% 8%
Guam 4% 4%
Hawaii 4.17% 4.71%
Idaho 6% 8.50%
Illinois 6.25% 10.25%
Indiana 7% 7%
Iowa 6% 7%
Kansas 6.50% 11.50%
Kentucky 6% 6%
Louisiana 4.45% 11.45%
Maine 5.50% 5.50%
Maryland 6% 6%
Massachusetts 6.25% 6.25%
Michigan 6% 6%
Minnesota 6.88% 7.88%
Mississippi 7% 7.25%
Missouri 4.23% 10.85%
Montana 0% 0%
Nebraska 5.50% 7.50%
Nevada 6.85% 8.25%
New Hampshire 0% 0%
New Jersey 6.63% 12.63%
New Mexico 5.13% 8.69%
New York 4% 8.88%
North Carolina 4.75% 7.50%
North Dakota 5% 8%
Ohio 5.75% 8%
Oklahoma 4.50% 11%
Oregon 0% 0%
Pennsylvania 6% 8%
Puerto Rico 10.50% 11.50%
Rhode Island 7% 7%
South Carolina 6% 9%
South Dakota 4% 6%
Tennessee 7% 9.75%
Texas 6.25% 8.25%
Utah 5.95% 8.35%
Vermont 6% 7%
Virginia 5.30% 6%
Washington 6.50% 10.40%
West Virginia 6% 7%
Wisconsin 5% 6.75%
Wyoming 4% 6%

Calculating Sales Tax

Add the tax rate to the cost of your good or service. If the tax rate is expressed as a percentage, convert it to decimal by multiplying the result by 100. Then multiply this number using the formula below.

Find the list price and the tax rate.

  1. To obtain the tax rate as a decimal, divide the tax percentage by 100.
  2. To calculate tax, multiply the list price by the decimal tax rate.
  3. For the final price, multiply the list price by the tax rate.
  4. Take the purchase of a new coffee machine for your kitchen as an illustration. The coffee maker costs $70 and is subject to a 6.5 per cent state sales tax.

Tax Calculation:

  1. $90 is the list price and 6.5 per cent in taxes.
  2. By multiplying the tax rate by 100: 6.5 / 100 = 0.065
  3. Price multiplied by the decimal tax rate 70 * 0.065 = 4.55
  4. On a $70 purchase, you will pay $4.55 in tax.
  5. To determine the total price, add tax to the list price: 70 + 4.55 = $74.55
  6. Formulas for Calculating Sales Tax
  7. Sales tax rate = sales tax percent / 100
  8. List price x Sales Tax Rate equals Sales Tax
  9. List price plus sales tax equals total price with taxes, or
  10. List price plus the list price multiplied by the sales tax rate, orThe total cost with tax equals the list price multiplied by the sales tax rate.

U.S. Sales Tax History

While the United States was still a British colony in the 18th century, the English King taxed the American colonists on various goods even though they were not represented in the British government. The Boston Tea Party was one of the consequences of this taxation without representation, among other things. This, together with other circumstances, sparked the American Revolution. Thus, the debate over a sales tax had a role in the founding of the United States. Since then, the history of sales taxes in the United States has been bumpy, which is maybe why there has never been a federal sales tax. Many issues were brought up by some of the earlier attempts at sales tax. Sales taxes didn't take off until the Great Depression when state governments struggled to find practical ways to earn money. Sales tax was the most successful of the many diverse strategies explored since it was the main focus of economic policy in the 1930s. The first state to implement it was Mississippi in 1930, spreading fast across the country. Nowadays, most states impose a sales tax as a necessary and typically successful way to generate income for state and municipal governments.

How Can I Reclaim My American Sales Tax?

Taxpayers must decide whether to itemise deductions or take the standard deduction when paying federal income taxes. Everyone will pick differently, but most Americans choose the standard deduction. Only if deductions are itemised is sales tax allowable as a deduction from federal income tax. Generally speaking, taxpayers with sales tax as a deductible expense could discover that itemising deductions is not time-efficient. Because the IRS requires the submission of sales tax records, such as an entire year's worth of purchase receipts, itemising deductions also includes rigorous record-keeping and can be time-consuming. Anyone who intends to itemise should keep thorough records as these will be essential in figuring out how much sales tax was paid.

Taxpayers must decide whether to deduct state and local income taxes or sales taxes after determining whether to take the standard deduction or itemised deductions (but not both). Most filers deduct income taxes because the final amount is usually higher. It could be preferable for taxpayers who made significant purchases during the year to subtract sales tax rather than income tax if the sum of their sales tax payments exceeds their state income tax. Taxpayers who bought a new car, a wedding, an engagement ring, a vacation, or several large appliances during the tax year may pay more in sales taxes than in income taxes. Fewer than 2% of Americans deduct sales tax from their income each year.

Visit the Income Tax Calculator for further details or to perform calculations concerning income tax.

Value-Added Tax (VAT)

Over 160 nations throughout the world utilise VAT, which is a form of sales tax. When the value is added during manufacturing products and services, an indirect tax known as VAT is levied. The VAT can be charged on imported and exported goods in countries that impose one. Instead of only the final customer paying VAT, as is the case with U.S. sales tax, all parties in a supply chain, including wholesalers, distributors, suppliers, manufacturers, and retailers, will typically be required to do so. The sales price less the cost of any previously taxed components or materials utilised can be used to compute VAT.

A 1979 Tax Foundation research that examined the merits of VAT and sales tax provided some helpful information. Tax evasion is more challenging because VAT taxes are levied at every stage of a good's production chain. This is perhaps the most significant advantage of VAT taxation. Furthermore, taxing every link in a supply chain creates more substantial incentives for cost control. VAT can generate more income at a given rate than sales tax. The VAT, on the other hand, has a tendency to be regressive, which means that it disproportionately takes more money from people who have lower incomes. The cascading tax is also bad for exports, likely to trigger inflationary tendencies and new and marginal company operations. Visit the VAT Calculator to learn more or to perform calculations involving VAT.

Goods and Services Tax (GST)

Similar to VAT is the Goods and Services Tax (GST). It is a supply chain sales tax on goods and services. The terms "GST" and "VAT," used to describe taxes imposed by different nations, fall well short of telling them. The governments of Spain, Greece, India, Canada, Singapore, and Malaysia characterise their "sales tax" as a GST.

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