To calculate sales tax, multiply the taxable price by the tax rate written as a decimal, then add the result to the price. A $249.99 item at 8.25% carries $249.99 × 0.0825 = $20.62 in tax, so the total is $270.61. The IRS describes a general sales tax as a tax imposed at one rate on retail sales of a broad range of items.
What is the sales tax formula?
sales tax = taxable price × rate
total = taxable price × (1 + rate)
- Taxable price is the amount the tax applies to, usually the price charged for the item after the seller's discount.
- Rate is the percentage divided by 100: 8.25% becomes 0.0825.
This is a straightforward use of percent-of-a-number: convert the percent to a decimal and multiply. The guide to calculating a percentage covers the same step in other settings.
Step-by-step example
A $249.99 purchase in an area with an 8.25% combined rate:
- Convert the rate: 8.25 ÷ 100 = 0.0825.
- Tax = 249.99 × 0.0825 = 20.6242, which rounds to $20.62.
- Total = 249.99 + 20.62 = $270.61.
The total can also be found in one step: 249.99 × 1.0825 = 270.6142, which rounds to $270.61.
Which rate do you use?
The rate at the register is usually a combined rate: a state rate plus local rates added by counties, cities or districts. Texas is a clear example. The Texas Comptroller states that the state rate is 6.25 percent, that cities, counties, special-purpose districts and transit authorities may add up to 2 percent, and that the total maximum combined rate is 8.25 percent. A $100 taxable sale at the maximum combined rate therefore carries 100 × 0.0825 = $8.25 in tax.
Local rates depend on the address of the sale, so the reliable source is the state revenue department's own rate lookup or the seller's checkout. Using the state rate alone understates the tax wherever local rates apply. Rates and what is taxable change, so use a current official source before filing returns or pricing an invoice.
Sales tax on common prices
The table shows the tax in dollars at five rates. Every figure is price × rate, with no rounding needed.
| Price | 5% | 6% | 7% | 8% | 9% |
|---|---|---|---|---|---|
| $10 | $0.50 | $0.60 | $0.70 | $0.80 | $0.90 |
| $25 | $1.25 | $1.50 | $1.75 | $2.00 | $2.25 |
| $50 | $2.50 | $3.00 | $3.50 | $4.00 | $4.50 |
| $100 | $5.00 | $6.00 | $7.00 | $8.00 | $9.00 |
| $250 | $12.50 | $15.00 | $17.50 | $20.00 | $22.50 |
| $500 | $25.00 | $30.00 | $35.00 | $40.00 | $45.00 |
To get the total, add the price: $250 at 7% is $250 + $17.50 = $267.50.
How do you calculate sales tax from a total?
When a receipt shows only the total, the pre-tax price is the total divided by one plus the rate.
price before tax = total ÷ (1 + rate)
tax = total − price before tax
Worked example: a total of $108.50 includes 8.5% tax.
- Price before tax = 108.50 ÷ 1.085 = $100.00
- Tax = 108.50 − 100.00 = $8.50
A common mistake is to take 8.5% of the total (108.50 × 0.085 = $9.22). That is wrong because the rate applies to the pre-tax price, which is smaller than the total.
Is sales tax calculated before or after a discount?
Tax normally applies to the price the customer is charged, so a seller's markdown reduces the tax along with the price.
Worked example: a $120 jacket is 25% off and the tax rate is 7%.
- Discounted price = 120 × (1 − 0.25) = $90.00.
- Tax = 90 × 0.07 = $6.30.
- Total = 90 + 6.30 = $96.30.
Taxing the original $120 would give $8.40 of tax, which overstates it by $2.10. The discount calculator finds the sale price first.
Not every reduction is treated the same way. Coupons that someone other than the seller pays for, shipping, handling fees and trade-ins can be taxable or exempt depending on the state, so check the state revenue department for the specific item.
What is use tax and when does it apply?
Use tax is the buyer's side of the same system. California's tax agency explains that use tax applies to the use, storage or other consumption in the state of the same kinds of items that are subject to sales tax, and that the buyer pays it separately when the seller did not collect California tax. Typical cases are online or out-of-state purchases where no tax was charged at checkout.
The calculation is the same as sales tax: taxable price × the applicable rate. If a state's rate is 6% and a $400 item arrived with no tax charged, the use tax is 400 × 0.06 = $24.00. Each state sets its own rate, filing method and treatment of tax already paid elsewhere, so follow the state's instructions.
Can you deduct sales tax on a federal return?
Taxpayers who itemize can deduct either state and local income taxes or state and local general sales taxes, but not both. The IRS Topic 503 page explains the choice: actual sales taxes paid or the optional IRS sales tax tables, with an online Sales Tax Deduction Calculator to help. State and local taxes together fall under a combined cap, so whether the deduction helps depends on the taxpayer's situation and the year's rules.
Common mistakes when calculating sales tax
- Using the state rate when a local rate applies. The combined rate is what counts.
- Taking the percentage of the total instead of dividing by 1 + rate when working backwards.
- Taxing the pre-discount price when the discount is the seller's own.
- Rounding too early. Compute the tax on the whole taxable amount, then round to the cent. States set their own rounding rules, so line-by-line and invoice-level totals can differ by a cent.
- Ignoring exemptions. Some categories of goods may be exempt in a given state, and the list differs everywhere.
- Forgetting use tax on purchases where none was charged.
For a business, the formulas above are only the arithmetic. Registration, which items are taxable, and filing deadlines come from the state revenue department. The markup calculator can help set a price before tax is added.
Educational only, not tax or financial advice. Rates, exemptions and rules vary by state and change over time; confirm with your state revenue department or a tax professional.