Reverse sales tax works backwards from a total that already includes tax to the sale
figure underneath it. The method is the same everywhere — divide by 1 plus the rate
— but the divisor changes by state, and getting it wrong understates your sales on
every return.
Pre-tax price = Total ÷ (1 + tax rate)
Pick your state for the divisor, a worked example at that rate, and what the arithmetic
means when you file.
Taking the tax percentage off the total is the single most common error. The percentage
was applied to the smaller pre-tax figure, so a percentage of the total always overstates the
tax — and understates the sales you report. The gap widens with both the rate and the
size of the day.
Divide the tax-inclusive total by 1 plus the tax rate. At 8%, divide by 1.08. The result is the pre-tax price; subtract it from the total to get the tax.
Why can't I subtract the tax percentage from the total?
Because the rate was applied to the pre-tax amount, not the total. Subtracting 8% of a $1,080 total removes $86.40 when the actual tax was $80.00.
Which states have no sales tax to back out?
Alaska, Delaware, Montana, New Hampshire and Oregon have no statewide sales tax. Alaska permits local jurisdictions to levy their own, so totals taken there may still include local tax.
Does this work with local sales tax included?
Yes. Use the combined rate at the point of sale. The method does not care how many jurisdictions make up the rate.