Excel Tutorial: How To Calculate Sales Tax In Excel Formula

  25. August 2022, von Sebastian

Vermont has a 6% general sales tax, but an additional 10% tax is added to purchases of alcoholic drinks that are immediately consumed. These are only several examples of differences in taxation in different accrual accounting vs cash basis accounting jurisdictions. Rules and regulations regarding sales tax vary widely from state to state. In the United States, sales tax is calculated as a percentage of the retail price of certain goods or services.

States that impose a sales tax have different rates, and even within states, local or city sales taxes can come into play. Unlike VAT (which is not imposed in the U.S.), sales tax is only enforced on retail purchases; most transactions of goods or services between businesses are not subject to sales tax. Some states do not charge sales tax on specific categories of items. In Massachusetts for example sales tax is not charged on regular grocery items.

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As a result, the government permits a business to take all eligible sales taxes that it paid through its acquisitions and net them against all sales taxes collected from sales. The end result is that the business is reimbursed for any eligible out-of-pocket sales tax that it paid. If you sell products to customers who turn around and sell the same product to customers, you might not need to collect sales tax. Instead, your customer, who becomes the seller, must collect sales tax.

The customers must have resale certificates to be exempt from paying sales taxes. These issues become more relevant if we take into consideration the significant contribution of sales taxes to state revenues and the current transformation of the economy. However, it also means that the tax burden might be more palpable for the ultimate consumer. Moreover, as you will see in the following, the high diversity of sales tax structures over U.S. states can hurt the economy through distorting consumption and investment. When the U.S. was still a British colony in the 18th century, the English King imposed a sales tax on various items on the American colonists, even though they had no representation in the British government. This taxation without representation, among other things, resulted in the Boston Tea Party.

  • The most popular type of sales tax is the retail sales tax which is present on state-level in the United States.
  • Prior to 2018, the meaning of the word nexus had a different definition than it does now.
  • In British Columbia, they added both PST and GST, resulting in total cost of $7.83.
  • If you sell products to customers who turn around and sell the same product to customers, you might not need to collect sales tax.
  • However, sometimes prices are advertised including the taxes and you must calculate the original price of the product before taxes.

If all items share the same tax rate, copy cell C2 and paste it down column C alongside each item’s net price. Sales tax is not something that can be directly deducted from your income tax return. However, there are certain circumstances in which you can deduct sales tax indirectly. Assuming all purchases and sales are eligible and subject to GST, calculate the GST remittance or refund for each quarter.

A. Step-by-step guide to writing the formula

Here’s a step-by-step guide to writing the formula, as well as some tips for avoiding common mistakes. To determine how much sales tax to charge, multiply your customer’s total bill by the sales tax rate. The amount you collect for sales tax depends on the percentage you collect at and how much your customer spent on products or services.

Why is Sales Tax Important?

If you’re selling tangible goods that are not exempt from sales tax (such as groceries), you more than likely have to collect sales tax. If you’re selling a service, such as house cleaning or legal work, that will depend on your state’s specific laws. Both formulas assume the price of a good is located in cell B2 and the sales tax rate is located in cell F1. To address this concern, American policymakers adjusted the income tax law to compensate for such an adverse effect. Taxpayers can settle a limited amount on a special saving account (for example Individual Retirement Accounts and 401(k) plans) that is not subject to taxation until they withdraw their money during retirement.


Similar to GST, PST applies to the purchase of most goods and services in the province, and consumers bear the burden. For the same reasons as with GST, businesses typically pay the PST on purchases for non-resale items (such as equipment and machinery) and do not pay the PST on resale items. Businesses are responsible for collecting PST on sales and remitting the tax to the provincial government.

If you have tax rate as a percentage, divide that number by 100 to get tax rate as a decimal. Five states in the U.S. don’t charge sales tax at the state level. Calculating sales tax can be a crucial part of running a business efficiently, especially when it comes to invoicing and financial management. Microsoft Excel is an excellent tool for tracking and calculating sales tax. In this article, we will guide you through the process of calculating sales tax in Excel.

Alaska, Delaware, Montana, New Hampshire, and Oregon do not enforce sales tax. Although there is no state-mandated sales tax in these five states, keep in mind that there might be local sales tax laws that require you to collect. Economists, as commonly in a wide range of economic issues, often disagree on the implications of various tax burdens.


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