For kids, it can be very exciting to save up allowance or birthday money and then take it to the store to buy a toy they’ve been eyeing for weeks. But it can also be confusing when they get to the register and find that the total cost is more than the price that was listed on the shelf.
As adults, of course, we know that this difference reflects the sales tax added onto the item, and we’ve gotten so used to it simply being a fact of life that it can be hard to explain exactly what it is to a child.
What Are Taxes?
To understand sales tax, kids first need to know what taxes are. To help them with this concept, it’s good to begin with examples of things that taxes pay for.
These include parks, playgrounds, schools, fire and police departments, and roads. It’s important for them to realize that these are things individual people couldn’t pay for by themselves but that everyone needs, so as a society, we each contribute through taxes so that the government can pay for them.
What Does Sales Tax Pay For?
Depending on the state you live in, the sales tax collected may be reserved for specific purposes, or it may all go into a general fund that’s then allocated for projects through the state budget.
Most of the time, though, sales tax revenue is used for schools, public transportation, and the maintenance of city parks and other recreational facilities. Some of it may also go to cities and counties to help fund local projects, and a good chunk of it nearly always goes to pay for health insurance for children and other vulnerable populations.
What Gets Taxed?
In most states, essential items like groceries are not subject to sales tax, but most other things like clothes, toys, and many household items are. To help kids understand what is taxed, you can go through the store and point out different types of goods and ask them whether they think sales tax would apply. You can also go over old receipts with them so they can see the total you spent, the amount of tax you paid, and they can even try and pick out which items that tax applied to.
Calculating Sales Tax
Once kids understand what sales tax is and why we pay it, the next step is being able to calculate it so they will know exactly what the final cost will be of the item they want to purchase. To help them, you first need to find out exactly what the sales tax is where you live. Then, depending on how comfortable they are with percentages, you can plug that value into the proper formula.
The following example using a sales tax rate of 8.5% on a $7.99 purchase may be helpful in breaking down the steps in the calculation process so that it’s easier to follow.
- Write the sales tax percentage as a decimal.
- Multiply the sales price of the item by the sales tax rate in decimal form.
7.99 x 0.085 = 0.67
- You now know that the total sales tax charged on a $7.99 purchase is $0.67. So, to determine the total cost of the item, all you must do is add these two together.
7.99 + 0.67 = 8.66, or $8.66
It may be helpful to work through some more sample problems together as well.
- Jean finds a pair of boots and a handbag that she likes. The boots cost $34.99, and the handbag costs $18.49. The sales tax rate in her state is 7%. What will the total cost of her purchases be?
- Emil has $50. He wants to buy a game that costs $44.99, and the sales tax rate in his state is 8.5%. Does he have enough money to cover the cost of the game and the sales tax?
- Ashley buys a pair of jeans marked at $25 and a shirt marked at $14. The total cost of her purchase, including sales tax, is $41.34. What sales tax rate did she pay?
Another great way to practice calculating sales tax is to go through the store with your child and pick out items to calculate the total cost of.
The Value of Learning about Sales Tax
Learning about sales tax is a necessary life skill for your kids, but it’s also a good introduction to the concept of taxes and the way that our society functions.
Unlike other types of tax that may be too abstract for a child to fully appreciate, a small percentage added onto everything they purchase is something that’s a bit easier to wrap their head around. And because sales tax makes up a sizeable portion of the money most states take in from taxes, it pays for many of the facilities and services they take advantage of every day.
This is meant to help you teach sales tax for kids. We also offer a more sophisticated approach to understanding sales tax in our comprehensive guide to sales tax…perfect for grown-ups!