How to Calculate Sales Tax (Forward & Reverse Formula)

Sales tax is a fact of life for consumers and businesses alike. When budgeting for a big purchase or pricing inventory for your shop, getting the math right matters.

While calculating tax forward (adding it to a price) is simple multiplication, calculating it backward (finding the pre-tax price from a total) trips many people up.

In this guide, we’ll cover both formulas and show you how to handle the confusing mix of state and local tax rates using our Free Sales Tax Calculator.

The Standard Sales Tax Formula

To find the total price including tax, you need two numbers:

1. Price: The sticker price of the item.
2. Tax Rate: The percentage charged (e.g., 8.5%).

Step 1: Convert Rate to Decimal $8.5\% = 0.085$

Step 2: Multiply by Price $Tax \ Amount = Price \times 0.085$

Step 3: Add to Price $Total = Price + Tax \ Amount$

Example: A $100 shoes with 8.5% tax.

• Tax = $100 × 0.085 = $8.50
• Total = $108.50

The Reverse Sales Tax Formula

This is useful when you have a receipt for $108.50 and need to know what the item actually cost before tax.

Formula: $Pre\text{-}Tax \ Price = \frac{\text{Total Price}}{1 + \text{Tax Rate (Decimal)}}$

Example: Total is $108.50, Tax Rate is 8.5% (0.085).

• Pre-Tax = $108.50 / 1.085
• Pre-Tax = $100.00

Why “State Tax” Isn’t the Whole Story

If you look up “California sales tax,” you’ll see 7.25%. But if you buy a coffee in Los Angeles, you’ll pay 9.5%. Why?

Combined Tax Rate = State Rate + Local Rate

• State Rate: Set by the state government (e.g., CA is 7.25%).
• Local Rate: Set by cities, counties, and transit districts (e.g., LA County adds 2.25%).

When calculating, you must use the Combined Rate. Our Sales Tax Calculator lets you input both to ensure accuracy.

Tax-Free States

Five states generally don’t collect a statewide sales tax:

1. Alaska (Though local cities do charge tax)
2. Delaware (0% sales tax)
3. Montana (0% general sales tax)
4. New Hampshire (0% sales tax)
5. Oregon (0% sales tax)

If you live in or shop in these states, your sales tax math is very easy: it’s zero!

US State Sales Tax Rates (2026)

Here are the base state rates. Remember that local taxes (city, county, transit district) add on top of these.

State	Base Rate	Notes
Alabama	4.0%	High local rates can push combined above 11%
Arizona	5.6%	Cities add Transaction Privilege Tax
California	7.25%	Highest base state rate in the US
Colorado	2.9%	Low state rate but Denver adds 8%+ combined
Florida	6.0%	No state income tax; sales tax is major revenue
Georgia	4.0%	Counties add 3-4% in most areas
Illinois	6.25%	Chicago combined rate exceeds 10%
Louisiana	4.45%	Local rates push combined to 10%+ in some parishes
New York	4.0%	NYC combined rate is 8.875%
Tennessee	7.0%	Second-highest base rate; no income tax
Texas	6.25%	No income tax; combined rates reach 8.25%
Washington	6.5%	No income tax; Seattle combined is 10.25%

States without income tax (TX, FL, WA, TN, NV) typically rely more heavily on sales tax revenue, which is why their combined rates tend to be higher.

Common Tax-Exempt Items

Not everything is taxed equally. Most states exempt or reduce rates on certain categories:

Groceries: 32 states exempt unprepared food from sales tax entirely. Others tax groceries at a reduced rate (e.g., Illinois charges 1% on groceries vs. 6.25% on general merchandise). Prepared food (restaurant meals, deli items) is almost always taxed at the full rate.

Clothing: A few states exempt clothing from sales tax, including Pennsylvania, New Jersey, and Minnesota. New York exempts individual clothing items under $110.

Prescription Drugs: Almost all states exempt prescription medications. Over-the-counter drugs are taxed in most states.

Tax Holidays: Many states offer annual sales tax holidays, typically in August before school starts. Texas, Florida, and Ohio waive sales tax on school supplies, clothing, and sometimes electronics for a weekend. Check your state’s department of revenue for specific dates and qualifying items.

Business Sales Tax Obligations

If you run a business, sales tax gets more complicated.

Nexus: You must collect sales tax in any state where you have “nexus” (a significant presence). Physical nexus means having an office, warehouse, or employees in the state. Economic nexus, established by the 2018 South Dakota v. Wayfair Supreme Court decision, means exceeding a sales threshold in a state (typically $100,000 in sales or 200 transactions per year), even without a physical presence.

Tax on Shipping: Some states tax shipping charges, others do not. If shipping is listed as a separate line item and the shipped goods are taxable, most states tax the shipping too. Free shipping avoids this issue entirely.

Invoicing: When creating invoices, always show the tax amount as a separate line item. This protects you during audits and helps customers understand what they are paying. Our Invoice Generator handles tax calculations automatically.

Simplify the Math

Use our Sales Tax Calculator to handle forward and reverse calculations instantly. It comes pre-loaded with base rates for all 50 states and lets you add local rates for accurate combined calculations.

Frequently Asked Questions

How do I calculate sales tax from a total receipt amount?

Use the reverse sales tax formula: divide the total by (1 + tax rate as a decimal). For example, if your receipt says $54.25 and the tax rate is 8.5%, divide $54.25 by 1.085 to get $50.00 pre-tax. The tax amount is $54.25 minus $50.00 = $4.25. This is useful for expense reports, accounting, and verifying that a store charged the correct tax rate.

Do I pay sales tax on online purchases?

Yes, in most cases. Since the 2018 Wayfair decision, states can require online retailers to collect sales tax if they meet economic nexus thresholds. Major retailers like Amazon collect sales tax in all states that impose it. Smaller sellers may not collect tax if they fall below the threshold, but technically you owe “use tax” on those purchases, which you’re supposed to report on your state tax return.

Why is my sales tax rate different from the state rate?

Your actual rate is the combined total of state, county, city, and any special district taxes. The state rate is just the base. A city might add 1-2%, the county another 0.5-1%, and transit or stadium districts can add more. This is why two addresses in the same state can have very different tax rates. Always look up the rate for your specific location, not just the state.

Are services subject to sales tax?

It depends on the state. Most states primarily tax tangible goods, not services. However, the trend is shifting. Hawaii taxes nearly all services. New Mexico, South Dakota, and West Virginia also tax a broad range of services. Other states selectively tax specific services like car repairs, landscaping, or dry cleaning. SaaS (Software as a Service) is increasingly being classified as taxable in many states.

How do sales tax holidays work?

During a sales tax holiday, the state temporarily suspends sales tax on qualifying items. Most holidays target back-to-school shopping (clothing, school supplies, computers) and occur in late July or August. Some states also have disaster preparedness holidays (generators, batteries, flashlights) and energy-efficient appliance holidays. The exemption typically applies only to items below a price threshold, such as clothing under $100.