What Is Sales Tax And The Sales Tax Calculator?

All You Need To Know About Sales Tax And Sales Tax Calculator
All You Need To Know About Sales Tax And Sales Tax Calculator

Sales tax is a consumption-based tax that is charged to the consumer at the final point of purchase of a product. The tax is not directly paid to the government by the consumer but is paid to the retailer who then transfers it to the higher authorities, which is why it is called an indirect tax.  

Under such a taxation framework, the consumer pays the price of the product plus the amount of sales tax that the retailer collects. 

In a few countries, the enumerated price on goods and services is the before-tax value of them, where they apply the sales tax during the purchase of it, at the final point. Whereas, in some countries, the prices mentioned on the products and services is the after-tax price, which includes the sales tax too.

A sales tax calculator is a method that will make your job easy and save you from the hardship of all the calculations. It a computerized method to calculate sales tax. You have to enter some inputs, like prices or tax rate in the calculator and you can easily get what you are looking for. It can help you to figure out the post-tax prices and also the tax rate. 

Sales Tax In The US

The sales tax in the U.S. at the federal level does not exist. It does subsist at the state level excluding just 5 states. The states that levy a sales tax have different rates, and even within states, locals or city sales tax can come into play.

Sales tax is only imposed on retail purchases. A majority of transactions of goods and services amongst businesses are not subject to sales tax. 

Depending on the state and the type of products or services, the sales tax rate ranges between 0% and 16%. It can differ in every state. For example, Texas has exempted prescription medicine and food seeds from taxation.

The impact of sales tax, on average, on Americans is about 2% of their income. It provides nearly 1/3rd of state government revenue and is second only to the income tax in terms of importance as a revenue source. 

Reliance on the sales tax also varies widely between the states. Sales taxes are of much importance in the south and west than they are in New England and the industrial Midwest. Texas, Florida, Tennesse, and Washington generate about 50% of their revenue from sales tax, and several of these countries raise nearly 60% of their tax revenue from sales tax. On the other hand, New York only raises about 20% of its revenue from the sales tax. 

How To Calculate Sales Tax?

Calculating Sales tax may sound like a very difficult process to many of you. However, if you know the formula and inputs, you can easily calculate the sales tax. Let us see the inputs first.

To Calculate sales tax, you need to know the sales tax rate in the area. Then you need to know the net price or the pre-tax price of that product. A pre-tax price, as the term suggests, is a price before applying the sales tax. It is simply the cost price of the product. 

If you have the above two inputs, you can easily calculate the sales tax and the post-tax price of the product. All you have to do is multiply the cost price by the tax rate. This will give you the payable tax amount. You can add this amount to the pre-tax amount to calculate the post-tax price of the product. It will be the final price payable by the consumer.

Now, let us understand this with a formula and an example. 

Formula And Example

Following is the formula to calculate the sales tax,

Sales Tax = Pre-Tax Price (Cost Price) * Tax Rate

Now, let us replace the formula with numbers and try to understand it. 

If the cost price of the commodity is $200 and the tax rate is 10%,

Sales Tax = 200 * 0.10                  = $20

Here, $20 will be the sales tax chargeable for that particular product. However, to calculate the final price you will have to add the sales tax amount to the pre-tax price.

Final Price = Pre-tax Price + Sales Tax

                  = 200 + 20 

                  = 220

Now, $220 will be the final price of the product. Thus, calculating sales tax will not only help you understand the sales tax amount but also the final price that you should charge to customers to cover the tax amount.

There are many benefits of calculating sales tax. You can use the sales tax while filing tax returns to get the benefits. But, how will you do that? Let us see.

How To Deduct Sales Tax In The US?

While filing federal income, you need to choose to either take the standard deduction or the itemized deduction. This decision can vary from person to person. But most Americans choose the standard deduction method given its hassle-free and simple character. 

The sales tax can be withdrawn from federal income tax only if deductions are itemized. Generally, taxpayers having sales tax as the only tax to reimburse may find itemizing deductions worthless. 

Itemizing deductions involves meticulous record-keeping and can be tedious work given the IRS requires the submission of sales tax records. You may need to submit a year’s worth of purchase receipts. One who plans to itemize should keep detailed records, as it’ll prove very helpful in determining the amount of sales tax paid. 

After choosing between the standard and itemized deductions, you will have to make another decision regarding whether or not to claim either state and local income taxes or sales taxes (but not both).  

A majority of taxpayers choose to deduct income taxes as it generally results in a larger figure. Having said that, it may be better for taxpayers, who have made large purchases all year long, to deduct sales tax instead of income tax if their total sales tax payments exceed the state income tax.  

Why You Should Use The Sales Tax Calculator?

With the formula, it may seem simple to calculate the sales tax and it is. However, when it comes to large and more complicated numbers, calculating on your own could be a tedious task. You must have a computer-based system to smoothly calculate all the numbers.

A sales tax calculator will do exactly that for you. You can calculate sales tax easily with a calculator. You only have to enter the inputs and it will give you the answer in no time. It will save you the time that you can utilize elsewhere.

A sales tax calculator will also minimize the possibility of errors while calculating and the loss of data. And most importantly, it will save you from crunching all the numbers all by yourself. So, if you want to be efficient and accurate while calculating your sales tax, you can simply refer to the sales tax calculator.