Have you ever wondered how to calculate sales tax? It’s easy to feel overwhelmed — after all, it has a direct impact on our lives and can vary a lot depending on several factors.
Say you go to a store to buy a bottle of soda. You look at the price tag and it says $ 2.50. However, when you get to the checkout, you end up paying a little more than that. How can you know exactly how much you will end up paying?
The price you pay for a product includes a percentage related to its sales tax, which doesn’t go to the seller but instead it goes to the government. This also applies to several other categories of goods, depending on your country and state.
Because of such variations, it might be hard to understand how sales taxes work and calculate them. However, there are ways to make them more tangible so that your finances don’t get out of hand. Check out the answers to most of the questions related to this subject.
- What are sales taxes?
- Do sales taxes go to the federal government, states, or cities?
- Which states do not have sales taxes?
- How to calculate sales taxes?
- What is a sales tax calculator and what does it do?
What are sales taxes?
Sales taxes are a kind of tax applied to the sale of certain products and services in the United States, Canada, and other countries. It’s a mandatory tax paid directly by the consumer when purchasing these goods and it corresponds to a percentage of the price.
Different states and countries deal differently with sales taxes but the same concept applies everywhere: they are based on the actual price of products and collected by the sellers.
Such value is represented by a percentage. If a product that has a sales tax of 9.45%, it means that 9.45% of its value consists of a sales tax while the remainder is directly passed to the seller. This information is usually shown on purchase receipts.
In addition, it’s not all kinds of products that have sales taxes. In fact, each business is required to follow a list of goods that are taxable in order to stick to the law. For example, in most places, dietary foods and health supplements are exempt from tax.
Do sales taxes go to the federal government, states, or cities?
In the United States, all sales taxes are regulated by the states. This means that the states are the ones that collect sales taxes, not the federal government.
Since each state deal with their own sales taxes, it also means that they are the ones that set those values. So, for instance, as of 2020, the sales tax in Texas is 8.19% while Kentucky’s is 6%. Because of this, businesses that operate country-wide end up having to deal with multiple sales taxes depending on where purchases are being made.
However, some cities have the autonomy to regulate sales taxes in states that are exempt from them. You can learn more about this in the answer to the following question.
Which states do not have sales taxes?
As you have already learned, it’s not the federal government that sets sales taxes. Instead, this is controlled and collected by each individual state.
Even though the states are the ones that regulate sales taxes, there are also those that simply do not have them. These are the 5 US states without a statewide sales tax:
- Alaska (though some cities are allowed to impose local sales taxes);
- Montana (also allows local sales taxes on certain cities);
- New Hampshire;
In the case of Delaware, it’s important to note that, while the state has no sales taxes, it does impose a gross receipts tax. Unlike regular sales taxes, it’s not paid by the consumer but is instead being directed to the businesses. As of 2020, this tax ranges from 0.09% to 0.7%.
How to calculate sales taxes?
For those that value their money and how they spend it, it’s imperative to learn how to calculate sales taxes. After all, it helps understand how much you are really going to pay at the checkout and plan your purchases ahead.
The formula that’s used to calculate sales tax is pretty simple:
price of the product + sales tax rate (%) of the state/city
Let’s go back to the bottle of soda example. It costs $ 2.50. Imagine you live in Arkansas, which is a state that charges a sales tax of 9.47% as of 2020. Considering 9.47% of $ 2.50 equals 0.23675, so all we need to do is add that to the original $ 2.50 and round it up. The total is $ 2.74.
As it’s a percentage growth, the difference becomes more noticeable as your purchase gets more expensive. Imagine you’re buying a video game console that costs $ 300 under the same sales tax as the last example. The total will then become $ 328.41.
The math is simple but not easily worked out without help. That’s why it’s best to use a solution like a sales tax calculator.
What is a sales tax calculator and what does it do?
The role of a sales tax calculator is to provide you with the real value you will pay at checkout based on the product’s price and the sales tax for your state or city. It’s supposed to do all the math for you in an easy and fast way.
There are several types of sales tax calculators available, most of these being mobile and web apps. The most useful ones are those that don’t require any software installation by the user, such as the ones made by using ION.
In fact, there’s a whole section on ION related to pre-built calculator templates that can be used to add up all kinds of information. Calculating sales tax is only one of the possible solution finders for sales enablement.
Businesses that are investing in interactive content are able to provide solutions like these and positively affect their target audiences. Those provide a lot of value to people looking to learn how to calculate sales tax and figure out several other complex problems.
As you can see, learning how to calculate sales tax isn’t necessarily hard, just cumbersome. Like with many other aspects of daily life, it’s best if we can automate this process and figure out the real price we will pay at the checkout by using an interactive calculator. The power of interactive marketing is able to bring plenty of convenience to all kinds of people, including you.
Would you like to learn more about interactive content? Check out more information on what interactive calculators are here on our blog.