Tax — Definition, Formula & Examples

Tax is a percentage added to the price of goods or services, collected by a government. In math problems, you calculate the tax amount by multiplying the price by the tax rate, then add it to the original price to find the total cost.

A tax is a compulsory financial charge expressed as a percent of a transaction's value. The total cost equals the pre-tax price plus the product of that price and the tax rate, written as $\text{Total} = P + P \cdot r$ , where $P$ is the original price and $r$ is the tax rate in decimal form.

Key Formula

\text{Total Cost} = P(1 + r)

Where:

$P$ = Original price before tax
$r$ = Tax rate expressed as a decimal (e.g., 8% = 0.08)

Worked Example

Problem: A pair of shoes costs $60.00 before tax. The sales tax rate is 7%. What is the total cost?

Convert the rate: Write 7% as a decimal.

r = \frac{7}{100} = 0.07

Find the tax amount: Multiply the price by the tax rate.

\text{Tax} = 60 \times 0.07 = 4.20

Find the total cost: Add the tax to the original price.

\text{Total} = 60 + 4.20 = 64.20

Answer: The total cost is $64.20.

Why It Matters

Every time you buy something at a store, tax is added to the price. Understanding how to calculate it lets you predict exactly what you will pay at the register. Tax calculations also appear frequently on standardized math tests and are foundational for personal finance skills.

Common Mistakes

Mistake: Forgetting to convert the percent to a decimal before multiplying.

Correction: Always divide the tax rate by 100 first. For example, 7% becomes 0.07, not 7. Multiplying $60 by 7 instead of 0.07 gives $420 — clearly wrong.