Finance Your Business
How to Subtract Tax From a Total
Rather than charge customers tax on a purchase, you may choose to include tax in your purchase price. Even if you don't explicitly charge tax to your customers, however, you're still obligated to collect and remit any sales tax due to your state. Businesses that itemize sales tax on a receipt can keep an ongoing tally of sales tax liability. But if you include tax in your purchase price, you must perform an algebraic calculation to back out sales tax from your total sales receipts.
- Identify the specific sales tax rate for each item that you sell. Some states and cities charge different tax rates depending on the item you're selling, so make sure you choose the right rate for each item.
- Categorize your total receipts by department based on tax rate. For example, say that you sell hot food, drinks and packaged food and they're all taxed at different rates. Sum the total amount of hot food sold, excluding drinks and packaged food.
- Divide the total amount of department receipts by one plus the tax rate to find the total department receipts not including tax. For example, say you sold $10,000 worth of hot food and the sales tax on hot food is taxed at 8 percent. That means the total sales for hot food -- not including sales tax -- is 10,000 divided by 1.08, or $9,259.
- Subtract the total receipts from the ending figure from step 3 to calculate the amount of tax owed on the department receipts. In this example, sales tax is $10,000 minus $9,259, or $741.
- Repeat this process for sales in every other department using the corresponding sales tax rate and sum the total. For example, if sales tax on drinks was $500 and there's no sales tax on packaged food, your total tax on sales is $1,241 ($741 plus $500).