Complete Guide to Sales Tax, Surcharges & Reverse VAT
Sales tax is an ad valorem consumption tax imposed by state and municipal governments on the sale of goods and services. In international commerce and Europe, Value-Added Tax (VAT) or Goods and Services Tax (GST) is commonly incorporated directly into display prices.
Forward Sales Tax: Tax = Price × Rate | Final Price = Price + Tax
Reverse Sales Tax (Net Extraction): Before-Tax Price = Gross Price / (1 + Rate)
Reverse Sales Tax (Net Extraction): Before-Tax Price = Gross Price / (1 + Rate)
Frequently Asked Questions
What US states have zero state sales tax?
Alaska, Delaware, Montana, New Hampshire, and Oregon (often remembered as the NOMAD states) do not levy statewide sales taxes.
How does reverse sales tax help in business accounting?
When receipts only show the gross total paid, reverse tax extraction allows accountants to separate allowable business expenses from claimable sales tax input credits.