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I am confused about calculating Massachusetts Sales Tax (6.25%). Is there such an amount, that when added to its sales tax, equals $200?

The reason I ask is because my business has been charging $200 for things and we said tax was already included. How do I reconcile this?

7

No.

$188.23 has $11.76 tax = $199.99 $188.24 has $11.77 tax - $200.01

So, unless the based price contained the half cent for $188.235, the register would never show $200.00 even. How does the receipt to customer look?

  • 1
    But - when you pay the tax, it's 6.25/106.25 that you'd claim. It's not like you are gaining or losing anything by doing this. It's only for the customer that insists on seeing the math that you might have to discuss that half penny. – JTP - Apologise to Monica Oct 26 '11 at 20:13
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    I trust you'll do more business than that. If you actually had the one transaction, I'd suggest sending $11.77 as collected tax. But on $2000, you'll send $117.65. You don't send the tax on each transaction, but on the cumulative ones quarterly, and then reconcile any small difference at tax time. – JTP - Apologise to Monica Oct 26 '11 at 21:21
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    Nothing prevents you from charging a fractional cent. Every gas station in America does just that. – duffbeer703 Oct 27 '11 at 2:35
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    @JoeTaxpayer Good point. When I saw the word "reconcile" in the question, I'm thinking reconciliation for the state tax department. – duffbeer703 Oct 27 '11 at 13:01
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    If asked (and i cant imagine a cistomer asking... But) be sure to say you eat the penny not them. Even though it doesn't matter, the customer would rather hear it that way. – TomOnTime Nov 3 '11 at 12:59
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Don't worry about it. The State doesn't care about rounding error. All you need to do is say "We charge our prices with tax included" - you know, like carnivals and movie theaters.

Then follow the procedures your state specifies for computing reportable tax. Quite likely it wants your pre-tax sales total for the reporting period. To get that, total up your gross sales that you collected, and divide by (1 + tax rate). Just like DJClayworth says, except do it on total sales instead of per-item.

If you need to do the split per-transaction for Quickbooks or something, that's annoying. What Quickbooks says will be pennies off the method I describe above. The state don't care as long as it's just pennies, or in their favor.

4

Yes, it's a simple calculation. (x+0.0625x)=200 or x=200/1.0625 = $188.24

Technically $188.24 plus tax comes to $200.01. I would just eat the extra $0.01.

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