How to Add Tax to a Price

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All but five states in the United States charge sales tax on retail purchases, and many counties, cities or other municipalities charge their own sales tax on top of that. Generally, cashiers don't need to figure out sales tax while ringing up purchases because most sales terminals are preprogrammed to track items subject to sales tax and add the tax at the end of a transaction.

That being said, there are still many situations where it can be beneficial to know how to add the sales tax to the total price of an item, most notably when you're trying to figure out the total price of an item before purchasing it.

TL;DR (Too Long; Didn't Read)

To add tax to the price of an item, multiply the cost by (1 + the sales tax rate as a decimal).

When to Add Tax

There is no federal sales tax, and while 45 states do implement sales tax, it's important to recognize that each state has its own unique tax rate, and they each have different rules regarding what is taxable. Generally, only retail items sold to consumers are taxable and not services or items that are sold wholesale to other retailers, but each state has more specific rules. For example, some states require beverages to be taxed, while others don't, and some tax clothing, while others don't.

When trying to determine how much sales tax to add to a transaction and whether or not a certain item should be taxed, it is important to review your local tax rate and laws regarding what is taxable. Since local governments may add their own additional taxes, always look up the tax rate for the specific city where the purchase will take place. For example, try searching "Fort Worth sales tax" rather than just "Texas sales tax". This is true even in Alaska, Delaware, Montana, New Hampshire and Oregon since local governments in those areas might charge sales tax even if the states themselves don't charge it.

If you're trying to estimate the total price of something before buying it to budget for the purchase and you don't want to get too bogged down in the state tax code, just add sales tax to the entire purchase even if specific items you intend to buy may or may not be taxed. This way, you can be sure you won't go over budget, even if your items are a little less.

How to Calculate Sales Tax

Once you know the sales tax rate for the area in which you are shopping, you'll need to convert the percentage to a decimal by dividing it by 100. For example, if you were shopping in San Diego, the sales tax is 7.75%, which is 0.0775 when divided by 100. This is the number you then go on to multiply by the total cost of all taxable items.

So, if you bought a pair of shoes, scissors and goggles (which are all subject to tax in San Diego) and the total came to $65.87, then you would multiply this by 0.0775 to find the total amount of tax. In this example, the tax would be $5.10.

Adding Tax to a Price

When you're trying to find the total cost of an item, you'll need to add the total cost of the item to the sales tax. In the example above, you would add $65.87 to $5.10, which would leave you with a total payment due of $70.97.

However, if you want to avoid doing two separate calculations, you could instead just multiply the original cost by 1 plus the sales tax, as this will include the original cost in the total. In other words, to find the total cost of the items in this example, you would multiply $65.87 by 1.0775, which would give you $70.97 without first having to calculate the $5.10 in tax.

References

About the Author

Jill Harness is a blogger with experience researching and writing on all types of subjects including business topics. She specializes in writing SEO content for private clients, particularly attorneys. You can find out more about Jill's experience and learn how to contact her through her website, www.jillharness.com.