In most states, a sales tax is charged in addition to the cost of any item you purchase. The total price you actually pay for a purchase is known as the gross price, while the before-tax price is known as the net sales price. If you know the sales tax rate and the gross price you paid, you can determine the net sales price by the following formula.
First, you'll need to know the gross price you paid. Usually, this simply means looking at your receipt or credit card statement.
Next, determine the sales tax rate. Keep in mind that the state sales tax might not be the only tax being added onto the purchase price. For example, you may have a local tax or an additional tax on specific items. Convert the percentage to a decimal -- so 7% becomes 0.07.
Finally, divide the gross price by the sales tax rate plus one. This gives you the net sales price.
An example
Let's say that you bought a DVD, and your credit card statement shows that you paid $21.15. You know that your state's sales tax rate is 6% and that there are no other taxes on merchandise. Using the formula discussed earlier, we can calculate the net sales price as follows:
Finding the gross price and sales tax rate
With a little algebra, you can find any of the three variables mentioned here if you already know the other two. For example, if you're shopping and want to know how much an item will cost after tax, our formula can be arranged like this:
Or if you know what you paid for an item, and know what its pre-tax, or sticker price was, you can calculate the tax rate by rearranging the formula again:
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