How Is Tax Added to a Price?

tax-added-price Credit: Vincent Ricardel/The Image Bank/Getty Images

Tax is added to the price of a product by first determining the tax amount by multiplying the tax rate by the product price, and then adding the tax amount to the product price, according to the Tax rates are determined by each state.

Tax Foundation states that there are two possible tax rates that can be applied to a product price: state sales tax and local sales tax. State taxes are charged by 45 states while local taxes are charged in only 38 states. The highest combined sales tax, according to Tax Foundation, can be found in Tennessee, with a total combined state and local tax rate of 9.45 percent.