Guide
How Sales Tax Works: Calculating Tax, Totals, and Prices Before Tax
Sales tax is a percentage added to the price of most goods and services at the point of sale. Whether you're a shopper checking a receipt or a business setting prices, the math comes down to one simple formula.
Adding tax to a price
The formula is: tax = price × rate ÷ 100, and the total is price + tax. Equivalently, total = price × (1 + rate ÷ 100).
Example: a $100 item in a region with 8% tax costs $100 × 0.08 = $8 in tax, for a total of $108. At 16%, the tax is $16 and the total is $116. The percentage always applies to the price before tax — the sticker price — not to anything already added.
Working backward: the price before tax
Receipts often show only the total, and you may need the pre-tax amount — for expense reports, bookkeeping, or comparing prices across regions. Divide the total by (1 + rate ÷ 100).
Example: you paid $108 in total and the rate is 8%. Pre-tax price: $108 ÷ 1.08 = $100, so the tax you paid was $8. A common mistake is to subtract 8% of the total ($8.64) — that's wrong because tax was calculated on the smaller pre-tax amount, not the total.
Rates vary — a lot
There is no single sales tax rate. In the United States, states set their own rates (many between 4% and 10%), and cities and counties often add local tax on top, so two stores in the same state can charge different totals.
Many other countries use VAT (value-added tax) or GST instead, often at 15–25%, and those are usually included in the displayed price rather than added at the register. That's why a $20 price tag can become $21.60 at the checkout in one country and stay exactly $20 in another.
What gets taxed (and what usually doesn't)
Groceries, prescription medicines, and children's clothing are exempt or reduced in many places, while restaurant meals, electronics, and clothing often carry the full rate. Services are taxed in some regions and not others.
If you're a seller, this matters for pricing: decide whether your listed prices include tax or add it at checkout, and apply the correct rate for each product category. When in doubt, check your local tax authority's published rates — this guide explains the math, not the law.
Quick checks for everyday use
To estimate tax in your head, use 10% as an anchor: 10% of $45 is $4.50. Then 8% is a bit less ($3.60), 5% is half of 10% ($2.25), and 15% is 10% plus half again ($6.75).
The calculator does this precisely for any price and rate: enter the price before tax and the rate, and it shows the tax amount and the total including tax — handy for setting prices, splitting a receipt, or claiming tax back on expenses.
Try it yourself
Put this guide into practice with our free Sales Tax Calculator — no sign-up, no download.
Open the Sales Tax Calculator