Sometimes you want customers to see a clean final price that already includes sales tax. A reverse sales tax calculation works backward from that final price to find the pre-tax amount you may need to enter into your POS.
You can use this reverse sales tax calculator from DAVO by Avalara to back out sales tax from a total price. Enter your sales tax rate and desired price after tax to find the pre-tax price and sales tax amount.
How the reverse sales tax calculator works
To use the reverse sales tax calculator, enter the sales tax rate and the desired price after tax. The calculator works backward from the total to estimate the original pre-tax price and the sales tax amount included in the total.
The calculator uses a simple reverse sales tax formula behind the scenes:
Pre-tax price = Total price ÷ (1 + sales tax rate)
Then, the sales tax amount is calculated by subtracting the pre-tax price from the total price:
Sales tax amount = Total price – Pre-tax price
For example, if the total price is $20 and the sales tax rate is 7%, the calculator uses 0.07 as the sales tax rate:
$20 ÷ 1.07 = $18.69
Then:
$20 – $18.69 = $1.31
The pre-tax price is $18.69, and the sales tax amount is $1.31.
What is a reverse sales tax calculator?
A reverse sales tax calculator helps you determine the original sale price before tax when you already know the final amount charged to the customer.
For example, if a customer paid $107 total and the sales tax rate was 7%, a reverse sales tax calculation can show that the pre-tax price was $100 and the sales tax was $7.
This is the opposite of a standard sales tax calculation. In a standard calculation, you start with the pre-tax price and add sales tax. With a reverse calculation, you start with the final total and work backward.
For the regular version of this calculation, see how to calculate sales tax.
Reverse sales tax formula
Use this formula when you need to reverse-calculate tax from a total amount:
Pre-tax price = Total price ÷ (1 + tax rate)
Tax amount = Total price – Pre-tax price
The tax rate should be entered as a decimal. For example:
- 5% = 0.05
- 6% = 0.06
- 7.25% = 0.0725
- 8.5% = 0.085
The calculator handles this math for you, but understanding the formula can help you set tax-included prices, check receipts, review POS reports, or understand how much of a final price is sales tax.
When businesses need to calculate reverse sales tax
Businesses often use a reverse sales tax calculator when they want to display tax-included pricing. This can be helpful for restaurants, cafés, retailers, service businesses, or other businesses that want simple, predictable prices on menus, signage, invoices, or customer-facing materials.
A reverse sales tax calculator can help businesses:
- Find the pre-tax price needed to reach a desired final price
- Enter the right pre-tax amount into a POS system
- Keep customer-facing prices simple and consistent
- Reduce awkward rounding on tax-included prices
- Understand how much of the final price is sales tax
- Review receipts, invoices, POS reports, or transaction records that only show the total amount collected
A reverse sales tax calculator can help business owners, bookkeepers, and accounting teams separate the sale amount from the tax collected so that records are easier to review.
Example: Finding the pre-tax price for a clean final price
Say you want customers to pay exactly $25 after tax, and the sales tax rate is 6%.
If you enter $25 as the price after tax and 6% as the sales tax rate, the reverse sales tax calculator will show a pre-tax price of $23.58 and a sales tax amount of $1.42.
Here’s the formula behind that result:
$25 ÷ 1.06 = $23.58
Then:
$25 – $23.58 = $1.42
That means you would use $23.58 as the pre-tax price, and the final customer-facing price would be $25 after tax.
Example: Backing out sales tax from a receipt
Say your business has a receipt that shows a customer paid $216.50 total. The sales tax rate for that sale was 8.25%.
If you enter those numbers into the reverse sales tax calculator, the calculator will show a pre-tax sale amount of $200 and a sales tax amount of $16.50.
Here’s the formula behind that result:
$216.50 ÷ 1.0825 = $200
Then:
$216.50 – $200 = $16.50
That means the original sale amount was $200, and the sales tax collected was $16.50.
Make your sales tax less taxing with DAVO.
Can you back out sales tax for multiple tax rates?
In some locations, the total sales tax rate includes state, county, city, and district taxes. If those rates are combined into one total rate, you can usually use the combined rate for the reverse calculation.
For example, if a state rate is 6% and a local rate is 1%, the total tax rate is 7%. To back tax out of a $107 total, use 7% as the rate:
$107 ÷ 1.07 = $100
If you need to separate the tax collected by jurisdiction, check your POS reports, accounting system, or state filing instructions. Sales tax rules and reporting requirements vary by location, so it can also help to review sales tax by state information for the state where the sale took place.
Why the correct sales tax rate matters
To get an accurate result, you need the correct sales tax rate for the sale. Sales tax varies by state, county, city, district, product type, and other local rules. The rate used for a reverse sales tax calculation should match the rate that applied when the sale happened.
Businesses should confirm rates before calculating, collecting, reporting, or remitting sales tax. For state-specific information, visit our sales tax by state resource.
Make sales tax easier with DAVO
Calculating sales tax is only one part of staying compliant. Businesses also need to set aside the right amount, file returns on time, and pay the correct tax agencies according to the required schedule.
DAVO helps take sales tax off your plate by automatically setting aside sales tax daily in a separate account, then filing and paying it when due. DAVO integrates with many POS systems, helping businesses manage sales tax without waiting until the filing deadline to figure out what they owe.
Get started with DAVO and spend less time worrying about sales tax.
Frequently asked questions
Can businesses use tax-included pricing?
Many businesses use tax-included pricing to show customers a clean final price, but rules can vary by state, locality, and industry. Businesses should confirm whether sales tax must be separately displayed on receipts, invoices, menus, signage, or other customer-facing materials.
How do you calculate sales tax backward from a total?
To calculate sales tax backward from a total, divide the total price by 1 plus the sales tax rate as a decimal. The result is the pre-tax price, and the difference between the total and pre-tax price is the sales tax amount.
What is the difference between tax-inclusive and tax-exclusive pricing?
Tax-inclusive pricing means the displayed price already includes sales tax. Tax-exclusive pricing means sales tax is added separately, so the final amount the customer pays is higher than the listed price.
Why would a business use tax-included pricing?
Businesses may use tax-included pricing to give customers simple, predictable final prices. This can be useful for restaurants, cafés, retailers, event vendors, service businesses, and other businesses that want cleaner menus, signage, invoices, or customer-facing pricing.
Do I need to use the state sales tax rate or the total sales tax rate?
Use the total sales tax rate that applies to the transaction, including state, county, city, district, or other local rates when applicable. Using only the state rate may create an inaccurate pre-tax price if local sales taxes also apply.
Can reverse sales tax be used for receipts and invoices?
Yes. Reverse sales tax can help separate the pre-tax sale amount from the sales tax portion when a receipt, invoice, POS report, or transaction record only shows the final total collected.
Does a reverse sales tax calculator tell me what sales tax rate to use?
No. A reverse sales tax calculator uses the rate you enter, so businesses need to confirm the correct rate before calculating. Sales tax rates and rules vary by location, product type, and other factors.
