How to use the Sales Tax
- Enter the price and state whether it already includes tax.
- Enter the tax rate that applies.
- Read the net amount, tax amount and gross total.
- Check the correct rate for the jurisdiction and product category.
How the calculation works
Adding tax is gross = net × (1 + rate). Reversing it is net = gross ÷ (1 + rate), not gross × (1 − rate). At 20%, a gross of 120 contains 20 of tax, which is 16.67% of the gross figure — subtracting 20% instead would give 96 and understate the net by 4. This single confusion accounts for a large share of bookkeeping errors.
Rates are jurisdictional and category-dependent. US sales tax combines state, county and city rates at the delivery address, so a single state can hold hundreds of distinct combined rates; VAT and GST systems apply nationally but carry reduced or zero rates for food, children's clothing, books and other categories. Always confirm the rate for the specific place and product rather than assuming a headline figure.
Gross = net × (1 + rate) ; Net = gross / (1 + rate) ; Tax = gross − netSource: Standard ad valorem tax arithmetic. VERIFY the applicable combined rate for the jurisdiction and product category.
Worked example
An invoice total of 1,438.80 that includes 20% VAT, and a separate net price of 249 to which 8.375% sales tax applies.
- Net = 1,438.80 / 1.20 = 1,199.00; VAT = 239.80.
- Subtracting 20% instead would wrongly give 1,151.04.
- Second item: tax = 249 × 0.08375 = 20.85.
- Gross = 249 + 20.85 = 269.85.
The invoice contains 239.80 of VAT on a 1,199.00 net; the second item comes to 269.85 including tax.
Frequently asked questions
How do I remove tax from a gross price?+
Divide by one plus the rate. At 20%, divide by 1.20 — do not subtract 20%, which gives a different and incorrect answer.
Why does US sales tax vary so much within a state?+
State, county, city and special district rates stack at the delivery address, producing hundreds of combined rates within a single state.
Are all goods taxed at the same rate?+
No. Most systems apply reduced or zero rates to categories such as groceries, medicines and children's clothing, and the definitions vary between jurisdictions.
Should displayed prices include tax?+
Consumer prices in VAT and GST countries generally must include it; US prices are typically shown net with tax added at checkout. Business-to-business invoices usually show it separately either way.
Last reviewed August 31, 2026. We review this page whenever the underlying formula, tax year, published rate or standard changes.