Question

The purpose is to give you practice calculating and interpreting percents, budgets, sales tax, and discounts.

1. How do you calculate sales tax? How do you calculate a discount? Explain and give examples.
2. How is calculating sales tax different than calculating a discount? Explain and give examples.
3. How is calculating sales tax similar to calculating a discount? Explain and give examples.

Answer 1

Let us assume gross sales = 100, discounts = 10%, sales tax = 20%

Sales tax is calculated after invoice discounts.

So discount amount = 10% * 100 = 10

Sales tax = 20% of 90 = 18

So the calculation of amount payable will be = 100 - 10 + 18 = 108

Here 100 is the base for calculating discount of 10% while 90 is the base for calculating sales tax of 20%. Discounts calculated on gross sales while sales tax calculated on gross sales - discounts. Also discounts may be % age or value, sales tax is normally % age.

Both are calculated on different bases but similarity is that payment of both discounts and sales tax do not come to the seller. Discounts are passed on to customer. Sales tax is paid to the Government. Seller receives only amount after deducting discounts and sales tax amounts.