A discount can reduce the amount used to calculate sales tax, but the correct taxable amount depends on how the discount is treated. When tax applies after a discount, subtract the discount first and calculate tax from the reduced price.
Add tax to a price or extract included tax using the percentage rate you provide.
In this mathematical example, a 20 percent discount reduces a $100 price to $80 before an 8 percent tax is applied.
How a Discount Changes the Taxable Amount
A discount reduces the selling price paid by the customer.
When the reduced price is also the taxable amount, the sales-tax calculation begins after the discount has been subtracted.
Use the Sales Tax Calculator to compare tax before and after a discount.
Formula for Tax after a Discount
Calculate the discount amount first.
Subtract the discount from the original price to find the reduced taxable price.
Apply the tax rate to that reduced amount.
Worked Example with a Percentage Discount
Suppose an item costs $100 and receives a 20 percent discount.
The discount is $20, leaving a reduced price of $80.
At an 8 percent tax rate, the tax is $6.40 and the final price is $86.40.
Worked Example with a Fixed Discount
Suppose an item costs $75 and receives a fixed discount of $15.
The reduced price is $60.
At a 5 percent rate, the tax is $3 and the final amount is $63.
Tax before a Discount
Some calculations may use the original amount as the taxable base even when the customer receives a discount.
In that case, calculate tax from the original price and subtract the discount separately.
The resulting total will be higher than when tax is calculated from the reduced price.
Comparing the Two Methods
For a $100 price, a $20 discount, and an 8 percent rate, tax after the discount is $6.40.
Tax calculated from the original $100 price is $8.
The difference in tax is $1.60.
| Method | Taxable amount | Tax | Final price |
|---|---|---|---|
| Tax after discount | $80.00 | $6.40 | $86.40 |
| Tax before discount | $100.00 | $8.00 | $88.00 |
Percentage Discount Formula
Multiply the original price by the discount percentage divided by 100.
Subtract the resulting discount amount from the original price.
The remaining amount is the discounted selling price.
Multiple Discounts
Successive percentage discounts should normally be applied one after another rather than added together.
A 20 percent discount followed by a 10 percent discount is not the same as one 30 percent discount.
After the first reduction, the second percentage applies to the smaller amount.
Coupons, Rebates, and Store Credits
Different reductions can be treated differently depending on the transaction and applicable requirements.
A checkout discount, manufacturer rebate, gift card, or store credit may not produce the same taxable amount.
Use the taxable base shown by the relevant checkout or invoice rules.
Discounts on Multiple Items
When one discount applies to an entire basket, allocate or apply it according to the calculation method being used.
Items with different tax rates or exemptions may need separate calculations.
Avoid applying one combined tax rate when the taxable groups differ.
Common Mistakes
Do not calculate a percentage discount from the tax amount.
Do not assume every discount automatically reduces the taxable base.
Do not add successive percentage discounts as though they were one percentage.
Conclusion
When tax applies after a discount, subtract the discount before calculating sales tax.
The lower taxable amount produces a lower tax amount.
Use the Sales Tax Calculator to compare discount and tax results.
FAQs
Does a discount reduce sales tax?
It can when the reduced price is also the taxable amount.
How do I calculate tax after a discount?
Subtract the discount first, then apply the tax rate to the reduced amount.
What is 20 percent off $100 with 8 percent tax?
Using tax after the discount, the final price is $86.40.
Are two successive discounts added together?
No. Each percentage is generally applied to the amount remaining after the previous discount.
Are coupons and rebates treated identically?
Not necessarily. Their tax treatment can differ.
These examples explain percentage calculations only. Tax rates, exemptions, taxable amounts, discount treatment, service charges, and rounding methods vary. Confirm the current requirements that apply to the transaction.