How to calculate sales tax in 4 easy steps

Sales tax is added to the purchase price of many products and services and can be charged by state and local governments.

Calculating sales tax before you buy can help you be clear about your total cost. That can be especially important when you purchase big-ticket items like electronics or home appliances. Learn more about calculating sales tax.

Key takeaways

  • Sales tax is added to the price of a product or service and paid by the consumer at the point of sale.
  • Sales tax rates vary from state to state. Some local and municipal governments also charge sales tax.
  • To calculate sales tax, find the total tax rate you’ll be charged by state and local governments and then multiply it by the price of a product or service. 
  • U.S. states that don’t charge sales tax are Alaska, Delaware, Montana, New Hampshire and Oregon.

See if you’re pre-approved

Check for pre-approval offers with no risk to your credit score.

First: How does sales tax work? 

Sales tax is a common type of consumption tax. It’s added to the price of a product or service and paid by consumers at the point of sale. Sales tax can be added to everything, from clothing and home appliances to services like accounting and auto repair. 

Sales tax is charged at the state level by most states in the U.S. But local and municipal governments may also charge sales tax. One of the benefits of sales tax for government entities is that it helps raise revenue.

Excise tax is another tax that’s commonly added to the cost of products and services. The tax is typically added to things like tobacco, plane tickets and sports wagering. 

Sales tax exemptions

Most states exempt certain purchases from sales tax. The exemptions vary by state. Items that might be exempted include food, medicine and utilities. 

Foreign diplomats working in the U.S. may also be exempt from paying certain taxes, including sales tax.

Sales tax nexus

Sales tax nexus is a term that helps define how connected a business is to a state or local government. The central issue is whether the business owes sales tax to the government entity. 

Governments have complex criteria for what constitutes a nexus. Those criteria can include a business’s physical presence in a state—for example, with a warehouse, sample room or employee. But physical presence isn’t the only factor for establishing a nexus. That’s why some government entities can tax online retailers that don’t have a physical presence in their state.

Steps to calculate sales tax   

To calculate sales tax, you’ll need 2 pieces of information: 

  1. Price of the product or service you’d like to purchase
  2. Total percentage of sales tax you’ll be charged by state and local governments

Once you know that, use these four steps to calculate sales tax and the final purchase price. It may help to use an example to illustrate the process, so imagine that you’re in New York City and buying a $1,000 computer from a local electronics store. 

A graphic with numerical figures that illustrate how to calculate sales tax.

Step 1. Find the total tax rate percentage you’ll need to pay

Because sales tax can be imposed at state, city and local levels, you’ll need to find each tax you’ll be charged for the computer. Then, you’ll add together the tax rates you’ll be paying to arrive at your total tax rate: 

4% New York state sales tax + 4.5% New York City sales tax = 8.5% total tax rate percentage

Step 2. Divide the total sales tax rate percentage by 100

Once you have your total sales tax rate as a percentage, convert it to a decimal figure by dividing it by 100:

8.5% total tax rate percentage ÷ 100 = .085 total tax rate

Step 3. Multiply the total sales tax rate by the cost of the product or service

Now that you have your total tax rate as a decimal, multiply it by the price of the computer:

.085 total tax rate × $1,000 price of computer = $85 total sales tax

Step 4. Add your sales tax to the price of the good or service

Since you now have your total sales tax as a dollar figure, simply add it to the cost of the computer to calculate your total purchase price:

$85 total sales tax + $1,000 cost of computer = $1,085 total purchase price

Sales tax FAQ

Still curious about sales tax? Here are some frequently asked questions:

Alaska, Delaware, Montana, New Hampshire and Oregon don’t charge state sales tax. 

As of 2023, California has the highest state sales tax rate at 7.25%.

As of 2023, Colorado has the lowest state sales tax rate at 2.9%. But keep in mind that several states don’t charge sales tax at all.

Use tax is a form of sales tax. Use taxes typically apply when something is purchased in a state or locality without a sales tax but used in a place where the same good or service would have been taxed were it purchased there.

Calculating sales tax in a nutshell

Sales tax is a common consumption tax that’s added by most states to consumer purchases. Knowing how to calculate sales tax can help you determine the final price of an item or service you’re thinking about purchasing.

Sales tax is just one type of consumption tax that government entities can charge. Learn more about consumption taxes and how they can affect the final purchase price.

Related Content

Money Management

What are taxes?

Money Management

What is a tax credit?