# How to Calculate Reverse Tax?

Reverse tax is the method that we used to separate tax from the total sale amount. The sale tax usually includes with sale amount which represents the amount the buyer needs to pay. We may wonder how much is the products’ price and how much is the sale tax. We need to use some calculation to split both amounts.

In order to separate the sale tax from the total sale, we need to know the tax rate which may be different from one country to another. Some countries require the company to state the tax rate on the invoice when they issue to the customer. While other countries may require to separate the sale tax on the invoice, if so you may not be here to do the calculation.

## Reverse Sale Tax Formula

Sale tax equal to sale amount multiply by the sale tax rate. The total sale amount and sale tax amount equal to the total sale or gross sale. It is the amount that buyer needs to pay to the seller. So tax amount equal to total sale divided by one plus sale tax rate.

 $$Sale \ Amount = Total \ Sale \ – \ Net \ Sale$$ $Net \ Sale = {Total \ Sale \over (1 + Sale \ Tax \ Rate)}$
• Total Sale or Gross Sale is the amount which buyer pays to the seller.
• Net Sale is the amount of sale exclude tax.

## Reverse Sale Tax Example

Company ABC purchases raw material from the supplier cost $212,000 which is the total amount which company needs to pay. It already includes sale tax in the invoice, but the supplier does not separate between the purchase price and sale tax. We know that the sale tax is 6% in the country in which both companies operate. Please calculate the sale tax amount. Net Sale Amount =$ 212,000/1.06% = $200,000 Sale Tax =$ 212,000 – $200,000 =$ 12,000

## Example 2

Company XYZ sells goods cost of 100,000 to the customer. In addition to this, company needs to charge a sale tax of 5%. So the sale tax amount equal to $5,000 ($ 100,000 * 5%). The invoice bill to the customer will be $105,000 ($ 100,000 + $5,000), and it is known as the total sale include tax. The reverse sale tax will be calculated as following: Net Sale Amount = Total Sale /(1+ sale tax rate) = 105,000 /1.05 =$ 100,000

Sale Tax = total sale – net sale = 105,000 – 100,000 = $5,000 As we can see, the sale tax amount equal to$ 5,000 which the same to above calculation.