How Do You Calculate Sales Tax Backwards?
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.
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.