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Sales Tax
Unit 10
Example 1: Mr. Smith and his family came to the USA for a visit from
Melbourne, Australia. After purchasing $32.00 in clothing
at a department store, he was presented with a bill for
$34.36. Why did the department store charge him the
additional $2.36? How did the department store compute
this amount? What amount should Mr. Smith pay?
Analysis:
The department store was adding sales tax to the bill.
Sales tax is a tax on goods and services purchased and is
normally a certain percentage added to the buyer's cost.
Solution:
2.36 ÷ $32.00 = 0.0735. Sales tax was charged by the department store at
a rate of 7.375%.
Answer:
Mr. Smith should pay the department store $32.00 plus $2.36 in sales tax
for a total bill of $34.36.
Sales tax rates vary from state to state. Retail sales tax rates are set by the individual
states in the United States and vary from 0 to 9% of the sales price. Sales tax is usually
the responsibility of the merchant to collect and submit to the state, and stated
separately (or implicitly added at the time of the sale) to consumers. Let's look at some
more examples of sales tax.
Example 2: If the sales tax rate is 7.25% in California, then how
much would you pay in Los Angeles for a pair of shoes
that cost $39.00?
Solution:
($39.00)*(0.0725) = $2.8275. Round to the nearest
cent, the sales tax is $2.83.
Answer:
You would pay $39.00 plus $2.83 in sales tax for a total
of $41.83.
Example 3: A roll of plastic electrical tape costs $2.79. If the sales
tax rate is 5%, then how much sales tax is being
charge? What is the total cost for the tape including
tax?
Solution:
($2.79)*(0.05) = $0.1395. Rounded to the nearest cent
the sales tax is $0.14.
Answer:
The sales tax is $0.14 and the total cost is $2.79 + $0.14 = $2.93.
Example 4: The price of a new car is $29,990. If the sales tax rate
is 6.5%, then how much sales tax is being charged?
What is the total cost for the car including tax?
Solution:
($29990)*(0.065) = $1949.35.
Answer:
The sales tax is $1949.35 and the total cost is $29,990.00 + $1949.35 =
$31,939.35.
As you can see, for small purchases, sales tax can be a nuisance; whereas for large
purchases, sales tax can be a significant amount. Let's look at an example in which the
sales tax rate is unknown.
Example 5: If your restaurant food was $17.00 and the total bill was
$17.68, then what is the sale tax rate being charged?
Analysis:
Sales tax is the difference between the amount of the
total bill and the price of the item. If we divide the sales
tax by the price of the item, we get the sales tax rate.
Solution:
$17.68 - $17.00 = $0.68 and ($0.68) ÷ ($17.00) = 0.04.
Answer:
The sales tax rate is 4%.
Summary: Sales tax is a tax on goods and services purchased and is normally a
percentage added to the buyer's cost.
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Exercises
Directions: Each problem below involves sales tax. Solve each problem below by
entering a dollar amount with cents. Round to the nearest cent when necessary. Do not
enter a comma in your answer. For each exercise below, click once in the ANSWER
BOX, type in your answer and then click ENTER. After you click ENTER, a message will
appear in the RESULTS BOX to indicate whether your answer is correct or incorrect. To
start over, click CLEAR.
1. If the sales tax rate is 7.375% in New York State,
then how much sales tax would you pay in
Albany for a $34 pair of pants?
CLEAR
ANSWER BOX: $
RESULTS BOX:
2. If the sales tax rate is 5.25% in New Jersey, then
what is the total price including tax for a $25.00
piece of jewelry bought in Trenton?
CLEAR
ANSWER BOX: $
RESULTS BOX:
3. Amy bought a dress marked $42 and then paid
the store clerk a total of $43.47. What was the
sales tax rate? (Enter your answer as a percent.)
ANSWER BOX:
RESULTS BOX:
%
CLEAR
4. If the sales tax rate is 8.375% in New York City,
then how much sales tax would you pay for a
new car in Manhattan that costs $31,500?
ANSWER BOX: $
CLEAR
RESULTS BOX:
5. If the sales tax rate is 7.25% in California, then
how much tax should a merchant charge in San
Francisco for the sale of a $15 scarf?
ANSWER BOX: $
RESULTS BOX:
CLEAR