Sales Tax Calculator

You can use the Sales Tax Calculator to calculate the before-tax price, sales tax rate, and final price (after-tax).

What exactly is Sales Tax?

A sales tax is a consumption tax levied on selling particular goods and services and paid to the government. A seller usually collects sales tax when a customer completes a transaction.

In most countries, sales tax is called value-added tax (VAT) or goods and services tax (GST), another form of consumption tax. VAT is not imposed in the U.S. In some countries, the prices quoted for goods and services represent pre-tax value, and sales tax applies only at the time of purchase. In other countries, the prices quoted represent the final after-tax value, so they already include sales tax.

U.S. Sales Tax

There is no federal sales tax in the U. S. At the state level, all but five states have no sales tax. This group of five includes the states of Alaska, Delaware, Montana, New Hampshire, and Oregon. Even within the same state, local or municipal sales taxes may be imposed, resulting in various sales tax rates. Only retail purchases are subject to sales tax, unlike VAT. Sales tax does not apply to the vast majority of business-to-business transactions.

Many rules and regulations affect sales tax across the United States. All states impose sales taxes differently, with tax rates ranging from 0% to 16% depending on which state you’re buying from and what you’re buying. Vermont has a general sales tax of 6% and an additional 10% tax on purchases of alcoholic beverages for immediate consumption. Texas doesn’t tax food, seeds, and prescription drugs. These are just a few examples of the wide range of taxation systems used in different areas.

Sales taxes eat up around 2% of the average American’s take-home pay. A third of state government revenue comes from sales tax, which is second only to income tax in terms of importance.

To varying degrees, states rely on the sales tax.Sales taxes are far more essential in the south and west than in New England and the Midwest. Four states in the U.S. (Florida, Tennessee, Texas, and Washington) produce over 50% of their revenue from the sales tax. And some of these states generate nearly 60% of their tax revenue from the sales tax. However, the sales tax only accounts for around 20% of New York City’s revenue.

State-by-state sales tax rates

U.S. History of Sales Tax

The American colonists were subjected to various taxes by the English king throughout Britain’s colonial rule in the 18th century. However, they had no representation in the British government. A protest by American colonists on December 16, 1773, in response to the actions of the British government known as The Boston Tea Party, resulted from this taxation without representation. In combination with other events, this was the catalyst for the start of the American Revolution.

Therefore, the disagreement over a sales tax was a factor in the formation of the United States. A complex history of sales taxes has followed, explaining why the United States has never enacted a federal sales tax. There were a lot of issues with some earlier attempts to impose a sales tax.

The sales tax did not begin to take effect until the Great Depression. State governments had trouble finding ways to collect revenue effectively. Of the many methods tried, the sales tax was the most effective because the economic policy of the 1930s focused on selling goods. Mississippi was the first state in the country to introduce a sales tax in 1930, and it was quickly adopted nationwide.

Today, the sales tax is being introduced in most states as a necessary and generally effective means of raising revenue for state and local governments.

Deducting Sales Tax in the U.S.

Individuals filing federal income taxes can take the standard deduction or itemize deductions. Most Americans choose the standard deduction in this situation.

You must itemize your deductions to deduct sales tax from your federal income tax. In most cases, itemizing deductions is not worth the effort for taxpayers who have sales tax as a deductible expense. Itemizing is a complicated process, and anyone who intends to do so should keep meticulous records of all purchases. This lengthy process needs diligent record-keeping and a year’s worth of purchase receipts, as required by the IRS (the Internal Revenue Service).

Next, taxpayers must determine whether or not to claim either state and local income taxes or sales taxes. You can’t choose both of them. Most taxpayers prefer to deduct income tax because it usually yields a larger figure. However, taxpayers who make large purchases during the year may find it more advantageous to deduct sales tax instead of income tax if the total sales tax payments exceed state income tax.

Suppose a taxpayer purchased a new car, an engagement ring, paid for a vacation, or many large appliances during the tax year. The sales tax they must pay might be more significant than their income tax bill. Each year, less than 2% of taxpayers in the United States claim sales tax as a deduction.

Value-Added Tax (VAT)

Imported and exported goods can be taxed in countries that impose a VAT. It is the most popular type of sales tax in more than 160 countries outside the United States. VAT is levied as an indirect tax anytime value is added to the production of goods or services. All participants in the supply chain (such as wholesalers, suppliers, and manufacturers) must pay VAT, not just the last buyer, as is the case with sales tax in the United States.

You can calculate VAT by deducting the cost of materials or parts already taxable from the sale price.

In 1979, the Tax Foundation published a study giving some insight into the arguments for or against VAT versus sales tax. It contained information about some of the advantages of taxation with VAT. Taxes like VAT can raise more money than sales taxes at a given rate. Tax evasion is more difficult with VAT because this tax is applied at every stage of a good’s production cycle. In addition, taxing the entire supply chain creates more substantial incentives to keep costs under control.

At the same time, VAT is regressive because it takes proportionately larger amounts from those with lower incomes. New and marginal businesses suffer from cascading taxes, leading to inflationary tendencies and damaging the economy’s ability to export goods.

Goods and Services Tax (GST)

GST, or Goods and Services Tax, is similar to VAT. The GST (Goods and Services Tax) is an indirect sales tax levied on various goods and services throughout the supply chain. The taxes levied in many countries that set either "GST" or "VAT" are very different. Countries representing their "sales tax" as GST include Canada, Greece, India, Malaysia, Singapore, and Spain.