Sales tax calculator

The three ways to calculate sales tax

Small business owners encounter sales tax in three common situations:

• Adding sales tax: Standard retail point-of-sale or wholesale quote. You start with an item subtotal and multiply by (1 + Tax Rate / 100) to compute the final customer total.
• Reversing sales tax out: When sales tax is included in a flat sticker price (such as festival food booths, ticket sales, or bar drinks). You divide the total by (1 + Tax Rate / 100) to determine how much revenue you keep and how much tax must be remitted.
• Grossing up: When an agreement specifies you must keep an exact net dollar amount, and sales tax must be added so the customer payment covers the exact tax owed.

A worked example

Suppose you operate in an area with a 5.0% sales tax rate:

• Adding tax: A customer buys $100.00 in merchandise. Sales tax is $5.00 ($100.00 × 5.0%), and the final register total is $105.00.
• Reversing tax: You sell an event pass for a flat $100.00 cash inclusive of all tax. Your true ticket price is $100.00 / 1.05 = $95.24, and the included tax to remit to the state is $100.00 − $95.24 = $4.76.

Common mistakes

The most common and expensive mistake is calculating reverse sales tax by subtracting the percentage from the total. For example, calculating $100 minus 5% equals $95.00, suggesting $5.00 in tax. But 5% of $95.00 is only $4.75 ($99.75 total), which leaves you underpaying your state revenue department. Reversing tax requires division, never subtraction.