How to Quickly Calculate Sales Tax

In the store, you will often see people pull out a calculator as they try to determine what the sales tax will be on an item. However, if you do not have a calculator or wish that you could calculate sales tax manually, I am going to show you how to figure sales tax in your head very quickly.

I recall being out at an appliance store with my friend Mary a few months ago as she was looking into buying a new refrigerator. Her goal was to buy a refrigerator under $1,000 dollars. At the store she spotted a beautiful model that I had not seen before but the price was $950 dollars.

Mary, excitedly, said, “This is it. This is the one that I am going to go with.”

“But,” I protested, “this refrigerator will cost you over a thousand dollars with the sales tax.”

Mary, like many of us in this situation, was not factoring in the tax on the item. And obviously, the bigger the price of the item, the larger the sales tax is going to be. So, how can we teach Mary and others to quickly calculate this taxes in their head?

Well, it is rather easy to determine the tax manually if we use what I will call the “rule of 10 percents”.

The “rule of 10 percents” allows us to quickly estimate sales tax without the need for a calculator. We can use this rule to easily come up with a number that will be very close to the actually tax of an item. And, if we want to be very precise, we can use this rule to get the number almost exactly.

Let’s have a look at how this system to quickly determine what the final coast will be. When Mary and I went out to buy the refrigerator, we were in California which has the highest state tax at 8.25%. With our 10% rule, we can quickly estimate that 10% of the $950 refrigerator would be $95 simply by moving the decimal point over one spot to the left. To get more specific, since California is at 8.25%, we can attain the value of each 1% simply by taking 10% of the 10%, which would be $9 (we won’t factor cents in this equation as it makes it easier).

Thus, we now know that 10% of the refrigerator is $95 and 2% of the refrigerator is $18. If we subtract $18 from $95, we arrive at $77, which represents an 8% total.

If we want to go further and calculate to a near exact amount (the.25%), we can say that 10% of the 1% would be 90 cents. If we multiply that by 2.5, we arrive at a figure of $2.25. Now, let’s add that to the 8% amount of $77 and we arrive at a total of $79.25.

When we use a calculator to figure the tax on this item, we can see that our manual sales tax calculation brings us to within $1 of the actual sales tax of $78.38.

So, the next time that you do not have a calculator, do not fear. Simply use this “rule of the 10%” to quickly calculate sales tax manually.

As a footnote, Mary bought the refrigerator anyway.

Source by Richard Tyler C

Diana McCalpin is an accountant who manages a Certified Public Accounting Practice in Laurel, Maryland which performs audit, accounting and tax services to customers. She loves to share information with clients to help them grow their businesses and be profitable.

Share this

Leave a Reply