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Usually this sort of calculation doesn't make a huge difference, but occasionally there is a difference of about 1 cent or so.

Let's say the sales tax is 8%, and the regular price of a taxable item is $1.69.

So, 1.69 * 0.08 = 0.1352 = 0.14 (rounded) - total tax on this item is $0.14.

Now let's say this same item was on sale for $1.29. This is a store promotion, so any sales tax has to be deducted along with the item price.

1.29 * 0.08 = 0.1032 = 0.10 (rounded) - total tax is now $0.10. (A 4 cent difference on the total tax).

But, if you do it the other way, which is taxing the difference that is deducted from the regular price, it comes out to be a cent higher.

1.69 - 1.29 = 0.40 difference between the regular and sale prices.

0.40 * 0.08 = 0.032 = 0.03 (rounded) - now a 3 cent difference on the total tax.

Some of this is due to rounding, and I get that. But is either one of these methods "correct," or is the taxable amount always rounded "ceiling" (to the next-highest cent)? If that's the case, then you'd get the same answer for both of these calculation methods.

I wouldn't think a 1-cent difference would be a huge deal to tax agencies, but I'm obviously not a financial expert so I wouldn't know.

  • If you are interested in an answer relevant to your location, please add a corresponding tag. – Chris W. Rea Feb 15 '16 at 15:35
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My experience has been that sales tax in the United States is rounded up. Always rounded up.

The tax is calculated by multiplying the subtotal by the tax rate.

There is no need to do the subtraction you are proposing, just sum all the items then subtract all the discounts and coupons; then find the tax.

Of course if some items have different rates it gets more complex.

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Sales tax is calculated from the total price actually paid by the customer for the taxable goods. The fact that there are other possible ways it could have been computed isn't relevant... just as the fact that computing taxes on the individual items that make up the total and summing them gives a different answer isn't relevant either.

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