Sales Tax calculations lesson and help with etsy needed.

concretenprimroses(4B NH)October 19, 2011

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?

Kathy

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

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mommyandme2

My head is spinning,but, thank goodness I've never tried to sell anything. Believe it or not, I was pretty good in math in HS, but that was sooooooo long ago. Thanks for spelling it out for those who need to know this stuff.

    Bookmark   October 19, 2011 at 2:47PM
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concretenprimroses(4B NH)

thanks for commenting m&m. I actually thought I was posting this on the Crafts and Decorations forum because there are sometimes discussions there about selling at fairs.
Kathy

    Bookmark   October 19, 2011 at 3:15PM
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concretenprimroses(4B NH)

I was too far in when I couldn't post a thread on etsy. so I figured it out and did it and now I can confuse even more people!
Kathy

    Bookmark   October 19, 2011 at 5:53PM
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luvs2click

I never deal with coins at a show either - I'm much too busy. I tried that before and had people standing in line and getting upset about the wait. I've found a much easier way to figure this all out. I just use Excel spreadsheets when I get home from a show, just enter the number of items I sold at, say, $2.00, the number sold at $4.00, etc. etc. and it figures it all out for me. Gotta love computers! Also I can change the tax rate depending on the county - just plug in the correct percentage and away I go.

    Bookmark   October 19, 2011 at 6:40PM
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concretenprimroses(4B NH)

Using Excel is a good idea. The folks in the post at Etsy didn't want to take the sales tax out of the amount they wanted for themselves for the piece.
Some states require that the buyer know what they are paying for the item(s) and how much the tax is, apparently, so you can't just do it at home after the show. Hopefully I'll never find myself selling in one of them cuz it does sound like a pitb.
Kathy

    Bookmark   October 19, 2011 at 9:53PM
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concretenprimroses(4B NH)

Luvs if you are multiplying the sales tax times the amount of money you collected you are over paying.
Kathy

    Bookmark   October 19, 2011 at 9:57PM
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jeannespines

That's what I do all the time, too, luvs & crete...I multiply the state tax X's the price I sold the item for...it seems much easier than the formula above...but I see what you are talking about crete. Jeanne S.

    Bookmark   October 19, 2011 at 11:08PM
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luvs2click

Kathy - it doesn't figure on the amt. collected. It goes per item - for a $1.00 item, 6 cents is figured on sales tax (our tax rate is 6.25%), for a $12 item, .75 cents is taken for tax, etc. It then multiplies how many $1.00 items, how many $12.00 items, etc. and figures it all out and gives me a total for tax and a total with tax. So for an experiment just now, I multiplied my total by tax rate and yes, it came out more than $3.00 higher than it should have on the tax. So I know that's not what it's doing. HA I'm not very computer smart, my hubby and son set these spreadsheets up for me.

Just for an example, the one I am looking at is 6.75% tax, my total money collected was $803.00 and the tax amount is $50.82, making my show amount $752.18 that is actually mine. Whereas if it multiplied my total times the tax rate the tax amount would be $54.20

Oh this is all so confusing otherwise, but I see what you're saying if you want to list the tax separately on your bill of sale.

    Bookmark   October 20, 2011 at 8:43AM
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concretenprimroses(4B NH)

Luvs, I can see they set your spread sheet up right

803 divided by 1.0675 equals 752.22

The 4 cent difference between my number and yours is due to rounding since you do it per item.

Jeanne, if you are saying the state tax is included, just divide the price by the 1.statetax
Or even easier just divide your total for the day that number.

State tax 6.75% Total sales including state tax: $1000.00

Correct way to calculate:
1000 divided by 1.0675 equals 936.77
$936.77 is what YOU get, $63.23 is the tax.

Incorect way $1000 times .0675 (which is 6.75%) equals $67.50 which is the incorrect tax. ($4-5 too high)

I guess if $4 or $5 per thousand doesn't matter. But think of all the junk you can buy for $5! Thee state doesn't care if you overpay, I'm sure.

In this day of calculators I think its as easy to divide your total by 1 plus the sales tax as it is to multiply by the sales tax.

I don't mind paying taxes, but I don't want to pay more than my share!

Kathy

    Bookmark   October 20, 2011 at 9:15AM
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