19.1 sales tax and excise tax

Business Math, Eighth EditionCleaves/Hobbs

© 2009 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

19.1 Sales Tax and Excise Tax

Use the percent method to find the sales tax and excise tax.

Find the marked price and sales tax from the total price.



19.1.1 Use the Percent Method to Find the Sales Tax and Excise Tax

These taxes are extra amounts that a business collects and later pays to the state.

Local taxes may apply in addition to state taxes. Some states charge no tax on food or medicine. Laws vary from state to state, but some

purchases made in one state and delivered in another do not include taxes.

It is the responsibility of the seller to determine if an article or item is tax-exempt.



Tax: money collected by a government for its support and for providing services to the populace.

Sales tax: a tax that is based on the price of a purchase. The tax is collected at the time of the purchase and the business periodically sends the collected tax to the governmental agency.

Excise tax : a tax on the sale of particular goods such as fuel, alcohol, and tobacco.

Key Terms



Find the sales tax

1. Write the given percent as a decimal.

2. Find the sales tax:

Sales tax = purchase price x sales tax rate

The sales tax rate is equal to tax per dollar of the purchase price or a percent of the purchase price.



Look at this example

Find the sales tax on $128.72 at six cents per $1.00 or 6%.

$128.72 x 0.06 = $7.72

The sales tax is $7.72

The total purchase would be: $128.72 + 7.72 = $136.44



Try these examples Find the sales tax on an dress that costs

$49.99. The tax rate is 7%. $3.50

Find the sales tax on 3 CDs totaling $36.94. The tax rate is 6.5%.

$2.40

Find the sales tax on suntan lotion that costs $10.99. The tax rate is 5%.

$0.55



Find the excise tax

1. Write the given percent as a decimal.

2. Find the excise tax:

Excise tax = purchase price x sales tax rate

The sales tax rate is equal to tax per dollar of the purchase price or a percent of the purchase price.




Find the excise tax on a purchase of $45.93 in gasoline where the excise tax rate is 27.1%.

$45.93 x 0.271 = $12.44703 (round up)

The excise tax is $12.45.

The total purchase would be: $45.93 + $12.45 = $58.38



19.1.2 Find the Marked Price and Sales Tax From the Total Price

The marked price is the purchase price before sales tax is added.

Total price: the marked price plus the sales tax.



Find the marked price

1. Write the sales tax rate as a decimal.

2. Add 1 to the decimal equivalent of the sales tax rate from step 1.

3. Divide the total price by the sum from step 2.

Marked price = total price1 + sales tax

rate



Look at this example The ticket to the movie you saw last night cost

$8.50 and included the tax. If the local sales tax is 7%, what was the marked price of your ticket?

Marked price = Total price ($8.50) divided by 1 + decimal equivalent of the sales tax (1 +0.07)

Marked price = $8.50 ÷ 1.07 = $7.94

The marked price of the movie ticket is $7.94.



Find the sales tax amount

Sales tax = total price – marked price

Find the sales tax for the movie ticket if the marked price is $7.94 and the total price is $8.50.

Sales tax = $8.50 - $7.94 = $0.56

The sales tax on the movie ticket is $0.56.



Try these examples Find the marked price and sales tax on a box

of popcorn which has a total price of $3.50. The local tax rate is 6%.

Marked price is $3.30; tax is $0.20.

Find the marked price and sales tax on a soft drink which has a total price of $2.50. The local tax rate is 6.5%.

Marked price is $2.35; tax is $0.15.



19.2 Property Tax

Find the assessed value.

Calculate property tax.

Determine the property tax rate.



Market value: The expected selling price of a property.

Assessed value: a specific percent of the estimated market value of the property

Property tax: tax collected by local governments from property owners. The tax is based on the type of property and the value of the property.

Key Terms



19.2.1 Find the Assessed Value

1. Write the assessment rate as the decimal equivalent of the percent.

2. Find the assessed value, which is = market value x assessment rate




Find the assessed value of a farm with a market value of $175,000 if the assessed valuation is 25% of the market value.

Assessed value = market value x assessment rate

Assessed value = $175,000 x 0.25 = $43,750

The assessed value is $43,750.



Try these examples Find the assessed value of one-family home

that has a market value of $125,000 and an assessment rate of 30%.

$37,500

Find the assessed value of a condo that has a market value of $80,000 and an assessment rate of 25%.

$20,000



19.2.2 Calculate the Property Tax

Property tax is imposed by the city or county government and the rate may be stated:

As a percent of the assessed value

As an amount of tax per $1.00, or per $100 of assessed value

As an amount of tax per $1,000 of assessed value, or in mills (1/1000 of a dollar)



Calculate the property tax1. Express the given property tax as tax per $1.00

of assessed value, depending on how the tax rate is stated.

For example: If the given rate is a number of mills per dollar of assessed value, divide the number of mills by 1000.

Tax per $1.00 = mills per $1.00

$1,000

2. Find the property tax = assessed value x property tax rate per $1.00.



Look at this exampleFind the property tax on a home with an assessed value of $90,000 if the property tax rate is :(a) 11.08% of the assessed value (b) 11.08% per $100 of the assessed value (c) $110.80 per $1,000 of assessed value(d) 110.8 mills per $1.00 of assessed value

Multiply the assessed value x tax rate:

(a) $90,000 x 11.08% = $9,972



Example (continued)

Property value = assessed value x tax on $100 ÷ $100

(b) Property tax =$90,000 x $11.08 ÷ $100 = $90,000 x 0.1108 = $9,972

(c) Property tax = $90,000 x $110.80 ÷ $1000= $90,000 x 0.1108 = $9,972

(d) Property tax = $90,000 x 110.8 mills ÷ $1000= $90,000 x 0.1108 = $9,972

The property tax is $9,972



19.2.3 Determine the Property Tax Rate

A city or county government determines how much money it will need in the year ahead.

The amount is then divided by the total assessed value of all property in its area.

The calculation tells how much tax must be collected for each dollar of assessed value.



Look at this example Determine the property tax rate as shown in the

example: Tax per $1.00* of assessed value =

total estimated budget total assessed property value

* (or tax per $100 x $100; tax per $1,000 x $1000, or tax in mills, per $1.00 of

assessed value)



Example (continued)

Find the tax rate expressed as tax per $100 of assessed value for Harbortown that anticipates expenses of $95,590,000 and has property assessed at $3,858,758,500.

Tax per $100 of assessed value =$95,590,000 ÷ $3,858,758,500 x $100 =$0.0247722162 x $100=$2.48 (rounded up)

The tax rate is $2.48 per $100 of assessed value.



19.3 Income Taxes

Find taxable income.

Use the tax tables to calculate income tax.

Use the tax rate schedule to calculate income tax.



Filing status: category of taxpayer: single, married filing jointly, married filing separately, or head of household.

W-2 form: form employer must provide each employee that shows earned income, income tax withheld, social security and Medicare taxes withheld.

Income tax tables: tax tables found in the IRS 1040 instructions publication for finding the amount of tax liability.

Key Terms



Gross income: money, goods and property received during the year.

Adjusted gross income: amount left after subtracting adjustments to income, such as credit for employee expenses which are not reimbursed by the employer.

Exemption: one is allowed per person; one for spouse and one for each dependent.

Taxable income: adjusted gross income minus exemptions and deductions.

Key Terms



19.3.1 Find the Taxable Income

1. Find the adjusted gross income =gross income – credits

2. Total the deductions and exemptions

3. Find the taxable income =adjusted gross income –

deductions – exemptions




Find the taxable income for a family of five (husband, wife and three children) if their adjusted gross income is $115,993 and itemized deductions are $18,930. Use an exemption of $3,300 for each.

Taxable income = adjusted gross income – deductions – exemptions

= $115,993 - $ 18,930 – (5 x $3,300)

= $80,563 is the taxable income for this family



19.3.2 Use the Tax Tables to Calculate Income Tax

1. Locate the taxable income under the column headed, “If line 40 (taxable income) is ____.”

2. Move across the column headed, “And you are _______,” which has the four categories of filing status listed under it. The tax owed appears under the appropriate category.



Look at this example Find the tax owed by a married taxpayer

(a) filing separately on a taxable income of $39,478 and (b) filing jointly on a taxable income of $39,478.

(a) find the appropriate table heading of at least $39,450 but less than $39,500. Move across the row to the column under “married, filing separately.” The amount is $6,426.

(b) On the same table and on the same row, move to the column headed “married, filing jointly.” The amount is $5,166.



Do you owe taxes or do you get a refund?

April 15 is the deadline for filing income taxes for the previous year.

If more taxes were withheld than you had to pay, you get a refund.

If less was withheld in taxes than you had to pay, you will owe the IRS.



19.3.3 Use the Tax Rate Schedules to Calculate Income Tax

1. Locate the correct schedule according to the filing status.

2. Locate the range in which the taxable income falls.

3. Subtract the low end of the range from the taxable income.

4. Multiply the difference from step 3 by the given percent for the range.

5. Add the tax from step 4 to the given tax for the range.




Find the tax on a taxable income of:

(a) $112,418 for a married taxpayer filing jointly using Table 19-2

(b) $128,382 for a married taxpayer filing separately using Table 19-2



Taxpayer A

(a) $112,418 for a married taxpayer filing jointly using Table 19-2:

1. Use Schedule Y -1

2. The taxable income falls between $61,300 and $123,700

3. $112,418 - $61,300 = $51,118

4. $51,118 x 0.25 = $12,779.50

5. $12,779.50 + $8,440 = $21,219.50



(b) $128,382 for a married taxpayer filing separately using Table 19-2:

Use Schedule Y 2 The income falls between $94,225 and

$168,275 $128,382 – $94,225 = $34,157 $34,157 x 0.33 = $11,271.81 $11,271.81 + $21,085.00 = $32,356.81 The tax owed is $32,356.81

Taxpayer B

19.1 sales tax and excise tax

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