Sales Tax Calculator
This sales tax calculator can help determine the sales tax amount, sales tax rate, before tax amount, and after-tax amount of a transaction that incurs a sales tax; just provide any two values and click the "Calculate" button.
What is a sales tax?
A sales tax is a tax that is imposed by the government on the sale of goods and services. The goods and services that are subject to this tax vary highly between countries and even regions, and are referred to as the tax base. It can be very difficult to determine what items are part of the tax base because so much variation occurs, the tax base is subject to change, and many exemptions exist. The potential tax base of a general sales tax is everything that a consumer purchases for personal use. In reality however, the potential tax base is much larger than the actual tax base due to the many exemptions that exist. Examples of products that are exempt from the tax base include groceries, items meant to be resold, animal feed, plants and fertilizer, drugs and medicines, professional health services, and more; note that these are just a few examples and that while widely exempt, these items are not necessarily universally exempt from a sales tax. There must be a balance between the potential and actual tax base; generally, a tax base that is too narrow is inefficient, while a broader tax base reduces the cost of administering sales taxes, allowing revenue to be collected at lower rates.
A conventional sales tax, or retail sales tax, is applied at the point of sale when a product that is part of the tax base is sold. The tax is collected at this stage by the retailer and then passed on to the government. As an example, a clothing store sells an article of clothing to a consumer and charges the consumer the appropriate sales tax which is then passed on to the government. This concept of the sales tax is most common to the United States, while many other countries instead apply a value-added tax (VAT) or goods and services tax (GST).
The key difference between a value-added tax and a sales tax is the point at which taxes are applied. Products go through many different stages in the manufacturing process, and are handled by many different entities throughout this process. In the US sales tax system, the sales tax should only be charged to the end user of a good, but it is not always clear or easy to distinguish the end user, and a tax may be paid on the value of goods at various stages of the production process. This means that a higher amount of total taxes is paid, which also means that the final cost to the end consumer tends to be higher. In contrast, a value-added tax charges a percentage of the value added at each stage of production, putting more cost on the companies producing the product. Rather than most of the tax falling to the consumer, taxes are paid based on the value added to the product at each stage in the manufacturing process.
Sales tax in the United States
The same way that sales taxes and VAT vary widely between countries, sales taxes within the United States are specific to states, as well as cities and counties within said states. Typically, each state within the United States has a base sales tax rate, referred to as the statewide sales tax rate; we will refer to this as the "state tax rate." In addition to the state tax rate, most states also have local tax rates. The total sales tax owed by the consumer is the sum of the state tax rate and the local tax rate, or:
total tax rate = state tax rate + local tax rate
For example, Texas has a statewide sales tax rate of 6.25%, an average local tax rate of 1.95%, and a max local tax rate of 2%. Thus, the highest possible sales tax owed in Texas is 8.25%, though the average is 8.20%. In certain states, the local tax rate may exceed the statewide sales tax rate, and in others, there is no local tax rate at all. Because total tax rate can vary significantly by jurisdiction, there are cases in which people may try to avoid these large discrepancies by traveling to different jurisdictions that may not actually be far in terms of physical distance. Generally, local tax rates are lower in the suburbs than they are in higher density areas like cities. Business may also choose to set up just outside the borders of high tax rate areas for the same reason that consumers do.
When trying to rank whether the tax rate in a given location is "good" in terms of paying less in taxes, the total tax rate is not the only factor. Another significant factor is the tax base. Recall from above that a tax base is the structure of the sales tax; it determines what is taxable and non-taxable. A state with a significantly larger tax base (more taxable items) may be more costly to the consumer, even if that state has a lower total tax rate than some other state with a smaller tax base. In other words, both total tax rate as well as tax base must be taken into account when considering the total cost to the consumer.