Whether it's US sales tax, UK VAT or Australian GST, the math is the same, and there's one mistake almost everyone makes at least once.
Adding tax to a price
Price with tax = price × (1 + rate ÷ 100)
A $80 item with 8.25% sales tax: 80 × 1.0825 = $86.60. The tax is $6.60.
Removing tax from a price that includes it
Price before tax = price with tax ÷ (1 + rate ÷ 100)
A £120 invoice including 20% VAT: 120 ÷ 1.20 = £100 before VAT, so the VAT is £20.
The common mistake
It's tempting to remove 20% VAT by taking 20% off: £120 − 20% = £96. That's wrong, because the 20% was added to £100, not to £120. Taking 20% off the bigger number removes too much. Always divide by (1 + rate) instead.
Shortcut for 20% VAT: the VAT part of a VAT-inclusive price is always one sixth of it. £120 ÷ 6 = £20. For 25% VAT it's one fifth, and for 10% GST it's one eleventh.
Sales tax vs. VAT
- US sales tax is added at the register, so shelf prices are shown without tax. Rates combine state, county and city taxes.
- VAT and GST (UK, EU, Australia, India and most other countries) are usually already included in the prices consumers see.
- Businesses registered for VAT usually charge VAT on their sales and reclaim the VAT they paid on purchases.
Do both calculations instantly with the sales tax and VAT calculator.