Business Math Series: How to Calculate Sales Tax

Here at Timesheets.com we know that math is important for the success of a business. That’s why we’re starting a business math blog series. We are dedicated to helping small businesses succeed by providing accurate calculations for your two most important business math problems: payroll and billing. With our software, those calculations are all done for you, behind the scenes, but many problems require a little bit of know-how on your part.

Today, we’ll go over sales tax.

Calculating sales tax is actually easier than you think. All you have to do is multiply the amount of your item or total of items by the sales tax.

In order to do this, though, you need to do one simple step. You need to convert your percent into decimal form.

The Method

To convert a percent to a decimal, you just need to move the decimal over two places. If you don’t see a decimal point, that’s no problem. There is a decimal point after every whole number.

6 is the same as 6.

So if you want to find 6% sales tax for an item costing $11, simply move the decimal point to the left two places and multiply.

.06×11 = .66. So your sales tax on the $11 item is 66 cents.

The Meaning

The percent symbol is used to tell you something about the number it sits beside. Percent means ‘parts per hundred’. So if a % sign sits beside a 6, it really means 6 parts per 100. You don’t need to know this to calculate sales tax but it might help you to understand why you need to convert the percent into decimal form to begin with. 6% tells us we need to multiply our item price by 6 pieces of a hundred.

Do you remember what the decimal places mean? The first decimal place is the tenths place and the second is the hundredths place. This is why when we convert our percent we have to move two places – we have to open up the hundredths place.

Example

A car costs $5,400 and the sales tax rate is 8.4%. How much is the total cost of the car after tax?

Step 1: Convert the tax rate to a decimal by moving the decimal two places to the left and removing the percent symbol. Our multiplier then becomes .084.

Step 2: Multiply .084 by 5,400 to get 453.60. $453.60 is the amount of tax you’ll be paying on the car.

Step 3: Add your tax to the price of the car for the total price of the car. 453.60 + 5,400 = $5853.60

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