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How to Calculate Sales Tax?

How to Calculate Sales Tax?

Calculation – How To Calculate Sales Tax

Nowadays, it’s pretty standard to know how much an item is going to cost before we buy it. It’s not as simple as just looking at the price-tag and paying for it; sales tax has filled in the gap to determine cost margins for both the buyer and the retailer.

It is no secret that sales tax rates are increasing, making tax impact on a purchase more significant. Let’s look at a few fundamental steps that will help us determine sales tax on our past, or future retail purchases. Get in!

Sales tax is one of the most important aspects of financial institutions pertaining to net business and retail exchange. In most cases, sales tax might help you determine the total cost for any item on your grocery list. Let’s try to understand this concept by looking at an example:

  • Let Item cost = $60
  • Let Sales Tax Rate = 7.5%

What is the total sales tax on the item?
According to a mathematical formula,

Total Sales Tax = Item Cost x Sales Tax Rate

                                                                      = 60 x 7.5%

 = 60 x 0.075

                                            Total Sales Tax = $4.50

By determining the sales tax, you can quickly calculate the total cost of the item, which in this case is nothing but a simple arithmetic calculation:

                                            Total Cost = Item Cost + Total Sales Tax
                                                              = $60 + $4.50 = $64.50

For the sake of your understanding, let’s have a look at another example:

Q. I want to buy a new phone from a marketplace in Islamabad. I have my mind set on getting the new Samsung Galaxy S20 Ultra, which costs Rs 220,000. If the Total cost of the phone in Islamabad is 252,000 rupees, what is the sales tax rate in Islamabad?

A guy handing over money to another person

Sounds complicated, doesn’t it?
It is actually quite simple. Take a look:

Item Cost = Rs 220,000
Total Cost= Rs 252,000

Sales Tax Rate =??

Total Cost = Item Cost + Total Sales Tax
                                     Rs 252,000 = Rs 220,000 + Total Sales Tax

252,000 – 220,000 = Total Sales Tax

Therefore:                            Total Sales Tax = Rs 32,000

Now, we have determined the total sales tax. But what is the rate? Again, a simple solution:

                                            Total Sales Tax = Item Cost x Sales Tax Rate

32,000 = 220,000 x Sales Tax Rate

0.1454 = Sales Tax Rate

                                                                   OR

 

Sales Tax Rate = 14.54%

This is quite simple, isn’t it? This is how you determine Sales Tax or Sales Tax Rates!

If you found this guide a good read, share among friends and drop a comment to let us know what you think! Here was all about how to Calculate Sales Tax.

 

Written by Ahsan Gardezi

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