What this calculator does
This calculator does the two things every store owner needs from tax arithmetic: it adds tax on top of a net price, and it pulls tax back out of a price that already includes it. You type your own rate, so it works for US sales tax, European VAT, UK VAT, GST, and any local rate you have to deal with.
How to use it
- Choose the mode. Add tax if your price excludes it; extract tax if the figure already includes it.
- Enter the amount you are starting from.
- Enter your tax rate as a percentage — whatever applies in the jurisdiction you are selling into.
- Read the main figure, then check the net, tax and gross values shown beneath it.
- Use the net figure, never the gross, when you calculate margins anywhere else on this site.
The formula, explained
The extraction formula is the one people get wrong. To remove 20% VAT from a gross price you divide by 1.2 — you do not subtract 20%. Subtracting gives 80% of the gross, which is too low, because the tax was calculated on the smaller net figure in the first place.
On a 120 gross price at 20%, dividing gives a net of 100 and tax of 20. Subtracting 20% would give 96, understating the net by four and quietly corrupting every margin calculation that follows.
A worked example
You sell a product for 49.99 excluding tax into a market with a 20% rate.
Tax is 49.99 × 0.20 = 10.00, so the customer pays 59.99. Now reverse it: if your storefront displays 59.99 tax-inclusive, the net is 59.99 ÷ 1.2 = 49.99 and the tax portion is 10.00. Only the 49.99 is your revenue — the 10.00 belongs to a tax authority and should never appear in a margin calculation.
| Net price | 49.99 |
|---|---|
| Tax rate | 20% |
| Tax amount | 10.00 |
| Gross price | 59.99 |
| Net from gross | 49.99 |
What a good result looks like
Rates differ enormously by country and, in the US, by state and even city. A few common reference points:
| Range | What it means |
|---|---|
| 0% to 10% | Typical US state and local sales tax combinations. |
| 5% to 15% | GST regimes such as Canada, Australia, India and Singapore. |
| 17% to 25% | Most European VAT rates, including the UK at 20%. |
| Reduced rates | Many countries apply lower rates to books, food and children's items. |
Common mistakes
- Subtracting the rate to remove tax. Dividing by one plus the rate is the only correct method. Subtracting always understates the net figure.
- Counting tax as revenue. Collected tax is money you hold on behalf of a government. Including it in revenue inflates AOV, margin and every plan built on them.
- Assuming one rate covers everything. Rates vary by destination and product category, and marketplaces often apply them automatically. Check before you generalise.
- Ignoring registration thresholds. Selling into a country can create a registration obligation once you pass a sales threshold. That is a compliance question, not a calculator one.
- Forgetting tax on shipping. Some jurisdictions tax the delivery charge as well as the goods. It is a small amount that adds up across thousands of orders.
Frequently asked questions
How do I remove VAT from a price?
Divide the gross, tax-inclusive price by one plus the rate as a decimal. For 20% VAT, divide by 1.2; for 19%, divide by 1.19. The result is the net price, and the difference between the two is the tax. Subtracting the percentage instead is the most common error in ecommerce bookkeeping.
Is sales tax the same as VAT?
They achieve a similar result differently. US sales tax is charged once at the final retail sale and is usually shown separately at checkout. VAT and GST are charged at each stage of the supply chain with businesses reclaiming what they paid, and prices are typically displayed tax-inclusive to consumers.
Should my displayed prices include tax?
It depends on the market and often on the law. European and UK consumers expect and are generally entitled to see tax-inclusive prices; US shoppers expect tax to be added at checkout. Most ecommerce platforms can handle this per region automatically.
Do I charge tax on dropshipping orders?
Frequently yes, and the rules depend on where you are established, where your customer is, and sometimes where your supplier ships from. This is genuinely worth twenty minutes with an accountant who knows ecommerce — it is much cheaper than getting it wrong for a year.
Does the tax rate affect my profit margin?
It should not, provided you calculate margin on the net price. Tax passes through your business rather than belonging to it. The one place it does affect you is competitiveness: in a tax-inclusive market a higher rate makes your displayed price higher.
How this fits with your other numbers
Tax is the one number on this site that is not yours, and treating it as revenue quietly corrupts everything else. Margin, average order value and lifetime value should all be calculated on net figures, or you will believe the business is a few percent healthier than it is and price accordingly.
The extraction direction matters most for stores selling into tax-inclusive markets. If your prices display with VAT included, run them through this calculator before doing any pricing work, so the margin you calculate is based on the money you actually keep. Compliance questions — where you must register, which rate applies to what — are worth a conversation with an accountant rather than a calculator.