# Sales Tax: Explanation and Calculation

## What is sales tax?

Sales tax is a key factor in making a number of business decisions. In some situations, this may be the only tax that a business must pay on the territory of a particular American jurisdiction. Sales tax is levied on the sale of goods as well as certain types of services. The sale of real estate is also exempt from this tax, however, many states have a tax on the transfer of rights to real estate.

Goods are considered to be both physical objects and some types of intellectual property (however, intellectual property is taxed less often). In every state, there is a very large list of items, the sale of which is exempt from the payment of sales tax. In general, the classification of a product plays a major role in sales taxes, and it is not always obvious that a product belongs to a specific category.

In accordance with United States law, tax is imposed on items sold by a “real” store. Therefore, in 1992, the Supreme Court exempted online purchases from sales tax if the online store did not have a physical location in the buyer’s state. Naturally, most Americans all these years preferred to buy on Amazon, eBay, and other online platforms, where there is neither sales tax nor customs tax, which was present in some states when shopping from abroad.

However, in 2017, the issue of taxation of online sales went back to the Supreme Court. As a result, on June 21, 2018, it ruled that the modern development of online technologies makes it possible to determine the location of an online store and now states can levy a tax on purchases, even if the seller does not have a physical presence in the buyer’s state.

If a seller is using marketplaces such as Google, Amazon, and others, there is no need to calculate the tax because these platforms calculate and withhold tax themselves. Some websites, for example, Amazon, give sellers the right to independently calculate and withhold tax if the sellers have a registration in the relevant state. To date, the Google service, though, does not provide its users with a breakdown of sales by state. Sellers (including online merchants) withhold taxes from buyers and then turn over the entire amount to the state when filing their tax returns.

## Sales tax calculation

As most people know, each state determines the tax rate independently. States can, within the framework of the US Constitution, set their own rates, rules, and laws with regard to sales tax.

This means that rates can vary significantly from place to place, so check which rate applies to you when trying to figure out how to calculate sales tax. It is possible that you might not even need to pay the sales tax. As was mentioned earlier, you should also find out if the item you are selling or purchasing is taxed or not.

Sales tax, for instance, does not apply to clothing sales in Pennsylvania, but it would be added to the price in California. Another example: in many states, the tax must be paid by the 20th of the month following the reporting period, but in some states, the deadline is before the 30th of the month. These two examples are just a few of the differences in the tax system across the country.

Now, we are going to actually learn how to calculate sales tax. Although tax rates differ across the country often depend even on the county that you live in, the process of calculating the sales tax is always the same. What would be the total cost for a backpack that costs \$89.99 including 7.5% sales tax?

We need to find out what 7.5% of \$89.99 is. Thus, the first thing we are going to do is convert the 7.5% into a decimal, which is going to be 0.075. When you multiply \$89.99 by 0.075, you will get 6.74925. You will round this number to the nearest penny to get \$6.75 of tax. Next, you would take the price of the backpack \$89.99 and add the tax. So, that backpack would be a total of \$96.74.

There is another method of calculating the total price with the sales tax included in it. If you were to take the price of the backpack and multiply it by 1 that would give you the price of the coat. If you multiply it by 1.075 that would be the price of the backpack and the tax. If you do the calculation, you will get a total of \$96.74. As you can see, you get the same amount no matter how you do the calculation.