Sales Tax calculations lesson and help with etsy needed.
We don't have a sales tax in NH, but someday I could sell things in VT who knows.
I was just reading the long discussion on Etsy about Craft Fair advice - lots of good ideas. However, I found people's misunderstanding of math and how to calculate things a bit frustrating because I wanted to post about it but couldn't figure out how. (Ha! I remember my friends in HS who said they would never use math in the "real" world so why learn! On the other hand, I couldn't figure out how to start a thread on Etsy and could use some help there!), so I am posting here in case any one has a problem with the math of Sales Taxes.
People wanted a round price that included the tax so they didn't have to make a lot of change at craft fairs.
Say the sales tax is 8.25% and you want the end price to be $25. First, 8.25% written in money is .0825 Divide the end price that you want by 1 plus the sales tax.
In this case 25 divided by 1.0825 equals 23.09. That is what you will be actually selling your item for if you charge $25 and it includes the sales tax. If this is not enough you need to raise your end price and start over. I guess some states don't just let you say the sales tax is included. In that case you could print your tags or signs with the info on it, eg: $25.00 (8.25% tax of $1.91 is included)
Have a list handy in case some know it all questions your math: List would say $23.09 + 1.91 = $25, etc for each price point. I mention this because a lot of people seemed to think that if you multiply the collected amount of $25 by 8.25% they would get the correct tax. Wrong. (See PS)
At the end of the day, say you have taken in $665.00
How much of that is sales tax and how much is your gross?
665 divided by 1.0825 equals $614.32 : this is your gross sales.
You can double check by multiplying 614.32 times the sales tax or .0825 which equals: $50.68 Add the two: $665.00
You may find yourself a penny or 2 off due to rounding. In that case, make sure you pay the right amount according to the tax form. In the first example, if you multiply 23.06 by .0825 you get 1.9049. So if you are actually having to put the sales tax on a sign, you might want to double check and in a case like this, round and write instead $25 (8.25% tax of 1.90 included. Sorry I put an example that has rounding ambiguity.)
Hope this helps someone. Now can anyone tell me how to start a new thread on an Etsy forum?
PS: Why it is wrong to multiply the sales tax percentage by the total amount you collect. The amount you collect is your price plus the sales tax. You would be paying tax on the sales tax if you multiplied the sales tax amount times the total amount collected.
If you multiply $25 by the example sales tax of 8.25% you get $2.06. This would be the sales tax on your take home gross of $25, that is, if you were selling the item for $27.06 If you are figuring your sales tax amount on the total amount collected you are overpaying! The sales tax is only on the amount you get to keep, not on the price plus tax.
Pss: 5% is .05 so you would divide the end price by 1.05; 10% is .10 so divide the end price by 1.10; etc etc To convert a percentage to money format, you move the decimal point 2 places to the left.
Psss: the formula
(myprice) plus (salestax times myprice) equals TotalPrice
X + (0.825)X = Y
1.0825X = Y
X = Y/1.0825