Some simple rules to help you calculate sales tax
Outlined below are three super simple rules you can use to impress your houseguests and stun coworkers with your ability to calculate sales tax in your head. But before diving into those rules, the most important thing to remember is to ALWAYS preface your statements with something like:
- The sales tax should be around…
- I think the sales tax works out to about…
- If I had to guess, the sales tax is roughly…
These statements make it sound like you’re making a complete guess (but you’re not) and even if you’re off a bit people will still think you are a walking calculator.
Important Note: If someone happens to pull out a calculator and crunches the numbers (in an obvious move to discredit your newfound superpower), when they reveal their calculated value it’s important to brush it off by saying something like “Sounds right.”
Rule #1 – Five no-brainer states
If you’re buying something in Alaska, Delaware, Montana, New Hampshire or Oregon then calculating sales tax is really simple because they don’t collect any. The sticker price you see while shopping is the price you’ll pay at the register. Easy peasy lemon squeezy as the saying goes.
Rule #2 – The big three exemptions
It’s doubtful even the most patriotic American would feel good about paying sales tax. And it seems unlikely the government officials that instituted their state’s sales tax did it to make us smile at checkout. I’ve never heard anyone say, “Oh my god, you made my day – I forgot about the sales tax!”
Well even those seemingly cold-hearted legislators couldn’t justify charging sales tax on certain purchases. Prescription medications are exempt from sales tax in the 45 states that collect a tax. Most states do not charge sales tax on food items / groceries and over-the-counter medications. So if you’re buying food items, over-the-counter medications or prescription meds, there is a very good chance you won’t be paying any sales tax.
Rule #3 – Using 6% as a rough estimate
The average sales tax charged across all states, and the District of Columbia, is 5.66%. It would have nice if the average worked out to be 5%, but alas – it’s closer to 6%. If you want to know the exact rate for your state, check out our state sales tax calculator – which has the rates for all fifty states.
Now comes the hardest part, you must memorize three values:
- 6% x 1 = 0.06
- 6% x 10 = 0.6
- 6% x 100 = 6
Hopefully, you remember your “times table” for six. For example, 6 x 7 = 42 and so on. Here too we have a big break because many of us learned up to 6 x 12 but to calculate sales tax we only need to go to 6 x 9!
Crunching the numbers
Do not bail at this point – this is much easier to do than it seems at first. It will take less than five minutes of practice and you will have this valuable skill forever. People will be amazed how fast you can do this in your head – really. Guaranteed you will have an awfully close estimate of the sales tax and bystanders will still be reaching for their phones. To drive this last rule home, it’s useful to run through some examples so you can visualize how this works.
You’re shopping for a new car and the dealer tells you they can sell you the car for 28,000. To quickly develop an estimate of the sales tax we break this number into two parts:
- 28 – which tells us we are working with two decimals and will be using the 6% x 10 value we’ve memorized
- 000 – which tells us we need our starting point three decimal places to the right
We know that 6% x 10 = 0.6 so in your head push the decimal over three places (since we are working in thousands) to 600. We also know what $28,000 is close to 30,000 so we multiply 600 x 3 and come up with 1,800. You could stop here, or you could knock off 100 since we know 28,000 is less than 30,000. (This would be my approach).
Final answer? If I had to guess, the sales tax works out to around 1,700. (Actual answer: 1,680)
Hint: Do NOT worry if the number is $27,568 – just round to 28,000 – we are guessing here, not trying to land someone on the moon.
You walk into a music store and find a guitar you fall in love with that is selling for 730. In this case we can use what we’ve already memorized – that 6% x 100 is 6. Since we’ve already rounded 730 to 700 in our head, we calculate the sales tax as 6 x 7, or 42. Once again, 730 is larger than 700 so we nudge it up a bit and come up with 43.
Final Answer? The sales tax should be around 43. (Actual answer: 43.80)
Please practice what you’ve learned
The best way to lock these concepts in your brain is to practice. Running through four or five more examples should do the trick. Coincidently, we have a sales tax calculator you can use to check your estimates – how convenient! Becoming a sales tax guru really is this simple – give it a try and you’ll be pleasantly surprised at quickly you’ll be able to do these calculations in your head.