How Reverse Sales Tax Calculation Works
- Convert Sales Tax Rate to Decimal: The sales tax rate provided as a percentage is converted into a decimal to facilitate the calculation. This is done by dividing the sales tax rate by 100. For example, a 20% sales tax rate becomes 0.20.
- Calculate Price Before Tax: To find out how much the item cost before tax, the formula used is:
Price Before Tax = Price with Tax / (1 + Sales Tax Rate (decimal))
This formula works backward from the final price to discover the original price before tax was added. - Calculate Sales Tax Amount: The amount of tax added to the original price to reach the total Price with Tax is calculated by subtracting the Price Before Tax from the Price with Tax:
Sales Tax Amount = Price with Tax - Price Before Tax. - Confirm Price After Tax: The Price After Tax is confirmed to match the initial input of Price with Tax, ensuring the logic is correct and the calculations have led back to the starting point.
By inputting the Price with Tax and the Sales Tax Rate (%), the calculator performs these steps to output the Price Before Tax, Sales Tax Amount, and confirms the Price After Tax.