Sales tax is a type of tax paid by consumers when purchasing anything. This tax is usually a tiny percentage of the sales amount. Local areas, such as cities and counties, as well as states, are often the ones that set sales tax rates.
Calculating sales tax is one of the most crucial things you need to know. Knowing how much an item will cost you before you decide to buy it is quite essential. However, it is not that easy calculating the sales tax. You can’t just look at the price tag and start to calculate it or know the sales tax right away. In order to understand the total cost of an item, you need to calculate the sales tax. The rates of sales taxes are always increasing, which tends to make a significant impact on a purchase.
Therefore, here are 4 tips to help you calculate sales tax most efficiently.
The total sales tax is equal to the service or item cost multiplied by the sales tax. Doing such a calculation will help you find the total cost of an item. For example, if the cost of the item is $70 and the sales tax is 7.5 percent (0.075) then the calculation would look like this:
Total sales tax = item cost x sales tax
TST = 70 x 0.075
Therefore, the total cost of the item is $5.25. After calculating the sales tax, you need to ensure that you add it to the original for you to get the total cost. For instance, if the total sales tax is $10 and the original cost of the item is $200, then the total cost will amount to $210.
If you happen to know the original cost of an item, you can calculate backward, which is normally referred to as de-calculation. Calculating backward will help you figure out the sales tax rate. But, you need to keep in mind that you have to know the original cost of the item to help you find the sales tax rate.
For example, if you buy a laptop selling at $1,000 and you get a total bill of $1,077, then that means the sales tax is $77. Therefore, to get the Sales Tax Rate, you will have to divide the original price by the tax rate.
$77 ÷ $1,000 = 0.077
Once you have done the calculation above, the next step is converting the decimal into a percentage by moving it to the right in two places. Therefore, 0.077 will be 7.7%
That means the initial sales tax rate was 7.7%
When you are the one that wants to be charging sales tax, there are various things you need to consider. These include:
Normally, a lot of tangible products are taxable in the US. Tangible products include items that you can feel and touch, such as books and furniture, among others. The governing of sales tax is normally done at the state level. The good news is that some states have decided not to tax items such as textbooks, groceries, and clothing. Therefore, you need to ensure that you check with the taxing authority in your state to help you know if what you are selling is taxable.
Usually, there isn’t any tax charged on services in a lot of states, although this has significantly changed in the past few years. Therefore, this is something you also need to find out if you are a service provider.
Another thing to consider is where your customer is situated and whether you have nexus in that state. Five states in the US don’t have any sales tax, and these include:
• New Hampshire
Apart from these five states, all the other states have sales tax. But, if you have sales tax nexus in a state, that is the only place where you need to collect sales tax. Nexus means that you are only subject to the Sales Tax laws of a specific state. But, you also need to know that sales tax laws are changing rapidly, which means you have to be on the lookout always and conduct thorough research to be on the safe side. Check here to know more about tax tips
When it comes to calculating sales tax, you have to ensure you do the right thing and find the correct information to avoid ending up with penalties. The good thing is that you can find information anywhere that might be quite helpful.