Lecture Practical business math procedures (11/e) - Chapter 19: Sales, excise, and property taxes

SALES, EXCISE, AND
PROPERTY TAXES
Chapter
Nineteen

McGraw­Hill/Irwin

Copyright © 2014 by The McGraw­Hill Companies, Inc. All rights reserved.


Learning unit objectives
LU19-1: Sales and Excise Taxes
Compute sales tax on goods sold involving trade and cash discounts
and shipping charges.
Explain and calculate excise tax.

1.
2.

LU 19-2: Property Tax
1.

Calculate the tax rate in decimal.

2.

Convert tax rate in decimal to percent, per $100 of assessed
value, per $1,000 of assessed value, and in mills.
Compute property tax due.

3.

19­2


Sales Tax
Sales taxes are paid on certain goods and services.

The sales tax percent is set by each state. Merchants
collect funds and forward them to government agencies.

19­3


Sales Tax
Compute sales tax and total price given the following information:
Selling price of battery: $32
Shipping charge: $3.50
Trade discount: 10.50%
Sales tax: 5%
Manual calculation
32.00 Price
-10.50 Trade discount
21.50 Taxable
x .05
1.08
+21.50
+3.50
$26.08

Tax

Taxable
Shipping
Total price w/shipping

Check 100% is base + 5% is tax = 105%
1.05 x $21.50 = $22.58 + 3.50 = $26.08

19­4


Calculating Actual Sales
Actual sales = Total sales
1 + Tax rate
Example:
Register receipts total $40,000 for the day, which included a 7% sales tax.
What are actual sales?
$40,000 = $37,383.18
1.07
Check
Sales $37,383.18 x .07 = $2,616.82
$37,383.18 + 2,616.82 = $40,000
19­5


Excise Tax
Excise tax is imposed on luxury items or nonessentials.

Excise tax is based on a percentage of the retail price of a
product or service.
19­6

Excise Tax

Angel Rome bought a fur coat for $5,000. Sales tax is 7% and
excise tax is 8%. What is her total cost?
Cost

$5,000

Sales tax

$5,000 x .07 = $350

Excise tax

$5,000 x .08 = $400

Total cost

$5,750

19­7


Property Tax
Property taxes pay for local fire and
police protection, schools, etc. They
are based on assessed value.

Assessed value –
The value of property for the
purposes of computing property
taxes.

Assessed value = Assessment rate x Market value

19­8


Determining the Tax Rate

Tax rate =

Budget needed
Total assessed value

19­9


CALCULATING PROPERTY TAX
Step 1. Compute assessed value.
Assessment rate x Market value

Step 2. Identify tax rate.
Town budget needs
Total assessed value
Step 3. Calculate property tax due.
Tax rate x Assessed value (Step 1 x Step 2)

19­10


Calculating Property Tax
From the following facts: (1) calculate the assessed value of Bill’s home; (2)
calculate the tax rate for the community in decimal (to nearest ten thousandth);
(3) convert the decimal to (a) %, (b) per $100 of assessed value, (c) per $1,000
of assessed value, and (d) in mills (to nearest hundredth); and (4) calculate the
property tax due on Bill’s home in (a) decimal, (b) per $100, (c) per $1,000, and
(d) in mills.
Given:
Assessed market value: 40%
Total budget needed: $176,000
Market value of Bill’s home: $210,000
Total assessed value: $1,910,000
1. Calculate the assessed value of Bill’s home:
.40 x $210,000 = $84,000
19­11


Calculating Property Tax
(cont.)
2. Calculate the tax rate for the community in decimal (to nearest ten
thousandths):
176,000
1,910,000

= .0922 per dollar

3. Convert the decimal to (a) %, (b) per $100 of assessed value, (c) per $1,000

of assessed value, and (d) in mills (to nearest hundredth):
a.
b.
c.
d.

.0922 = 9.22%
.0922 x 100 = $9.22
.0922 x 1000 = $92.20
.0922 / .001 = 92.2 Mills (or .0922 x 1,000)

19­12


Calculating Property Tax
(cont.)
4. Calculate the property tax due on Bill’s home in decimal, per $100, per
$1,000, and in mills.
a. .0922 x $84,000 = $7,744.80
b. $9.22 x 840 = $7,744.80
c. $92.20 x 84 = $7,744.80
d. 92.20 x .01 x $84,000 = $7,744.80

19­13


Expressing Tax Rate

By Percent
6.48%

Per $100 of
Per $1,000 of
Assessed Value Assessed Value In Mills
$6.48
$64.80
64.80

Per $100 of
Per $1,000 of
By Percent
Assessed Value Assessed Value In Mills
$63,000 x 6.48% $63,000 = 630
$63,000 = 63
64.80 x .001 x $63,000
$100
$1,000
630 x $6.48
= $4,082.40

= $4,082.40

63 x $64.80
= $4,082.40

= $4,082.40

19­14