How do you calculate sales tax backwards?


Quick Answer

The reverse sales tax formula is written as original price = final price / (1 + sales tax rate), according to Accounting Coach. First, determine the cost of the item without sales tax. Calculate this by dividing the final purchase price by 1 plus the sales tax rate, which equals the item’s cost before the sales tax. Second, subtract the answer computed in step one from the amount paid.

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Full Answer

QAD Solutions lays out the instructions to calculate sales tax in reverse as a two-step process. For example, assume that an item cost $10.50 at the time of purchase, and that the state sales tax rate is 5 percent. Divide 10.50 by 1.05, which equals 10. This is the cost of the item without the state sales tax. Next, subtract 10 from 10.50, leaving a difference of .50. The difference is the state sales tax paid at the register during the time of sale. The only tricky part is computing the (1 + sales tax rate) in step one. If the state sales tax rate is 5 percent, then express the percentage in the formula as 0.05 and add 1. Thus, (1 + sales tax rate) = (1 + 0.05), which equals 1.05.

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