Whether to record the sales tax portion of a refund or to provide greater transparency to your customers about the components of their purchase, there are several reasons you might need to calculate sales tax backwards. For example, if you’ve lost a receipt, and you’re looking at your credit card statement, you would only see the final selling price. To find out the amount of tax, you need to work backwards. This will let you find separate out the tax from the original price of the item.

To determine the total amount of sales tax in the sales price, a simple formula can be used.

Reverse Sales Tax Formula

To determine the amount of sales tax collected on a purchase, you must divide the total cost paid by (1 + tax rate). As an example, for a purchase in the State of Florida, where the sales tax rate is 6%, the calculation would look like this:

Total Price: $106
Tax Rate: 6%
Formula: 106/1.06

Gross Cost: $100
Sales Tax Paid: $6

Using this formula, you can determine that the sales tax amount in the final price is $6 and the gross price of the product is $100. Be sure when adding the percentage rate of the sales tax to “1” that you move the decimal point by two to reflect that it is a percentage. 

Determining the Sales Tax Rate for Your Calculations

To effectively use a reverse tax calculator, you must know the exact sales tax rate, including both state and local sales tax, paid by the customer. This will change for most customers depending on their location, as well as potentially the location of the recipient of the product (if different than the purchaser). 

As such, it’s important to know the total sales tax rate. However, you can also separate the tax rates to determine how much of the sales tax is being collected for state versus local. For example, if the same $100 Florida purchase was made in Miami, a 7% sales tax would apply instead of 6% due to the Miami-Dade County surtax.

The formula remains the same:

Total Price: $107
Tax Rate: 7%
Formula: 107/1.07

Gross Cost: $100
Total Sales Tax Paid: $7

There are many reasons a reverse sales tax calculation may be needed. Thankfully it is an easy process to perform, and quickly provides an accurate total for both the gross price of a product and the final sales tax paid. To ensure you have accurate local tax rates for everywhere you do business within the United States, from both state and local governments, check out our sales tax calculations software.

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