Calculate sale discount or tax first?

A warehouse gives a 20% discount on all items, but you also must pay 6% sales tax. Which would you prefer to have calculated first-the discount or the tax? Does it matter?

Confused about this question, can anyone help?

7 Answers

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  • QC
    Lv 7
    6 years ago
    Favorite Answer

    It makes no difference to the customer, although as mentioned by DAC there are rules in most places that requires the discount to be calculated first.

    Discount then tax:

    Original price = x

    Discount: 20% of x = 0.20x

    Discounted purchase price before taxes = 0.80x

    Sales tax = 6% of 0.80x = 0.06 * 0.80x = 0.048x

    Total purchase price = 0.80x + 0.048x = 0.848x

    Tax then discount

    Original price = x

    Sales tax = 6% of x = 0.06x

    Purchase price after tax but before discount = x + 0.06x = 1.06x

    Discount = 20% on 1.06x = 0.20 * 1.06x = 0.212x

    Total purchase price = 1.06x − 0.212x = 0.848

    Alternatively:

    applying a 20% discount calculated by multiplying by (1−0.20) = 0.80

    adding 6% sales tax is calculated by multiplying by (1+0.06) = 1.06

    Discount first, then tax = (x * 0.80) * 1.06

    Tax first, then discount = (x * 1.06) * 0.80

    We can clearly see that both products above will give same result, since multiplication is associative and commutative: (0.80*1.06)x = 0.848x

    NOTE: even through neither method makes a difference to the customer, it's better for the retailer if discount is applied first. This is because retailer receives same amount from customer either way, but if tax is calculated first, retailer will have to remit a larger amount in sales tax to the government (0.06x as opposed to 0.048x if discount is applied first)

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  • 3 years ago

    Discount Calculator With Tax

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  • David
    Lv 6
    6 years ago

    Regardless of what you prefer, most states require that the discount be figured first. The problem, however, asks you to take for example, an item priced at $1.00, subtract 20%, then add 6%; compare this to adding the 6% first and then subtracting 20% of that total.

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  • 3 years ago

    just fyi- getting the same answer both ways only works if the discount is by percentage. and if there are multiple

    items, they all have to be the same percentage off.

    it does not work if the discount is a fixed (dollar) amount- like $50 off all washers or a coupon for $10 on any pair of boots in the store.

    it does not work on a problem with differing percentages- like bogo free (or 50% off), or 2 for 1, or shirts 25% off, pants 40% off and coats 75% off.

    it does not work on multiples with fixed amounts- like buy 3 tires, get the 4th one for $1.

    in these cases, it works in the customer's favor to calculate the discount first, then the tax.

    :)

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  • 4 years ago

    I dont see where 20% off $100.00 is the same as 20% off $106.00. with the tax remaining constant.

    The results may be the same but you pay more tax on $106.00. Who wants to do that to make the equation equal??

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  • 6 years ago

    Calculate it both ways and see what happens.

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  • 6 years ago

    DISCOUNT FIRST

    ----------------------------

    Let the cost be $100X

    20% discount = $80X

    6% tax = $84.80

    TAX FIRST

    --------------

    Cost = $ 100X

    tax 6% = $106X

    20% discount = $84.80

    THERE IS NO DIFFERENCE

    • Michael6 years agoReport

      The math is correct but it's incorrect in practice because you gave discount of 20% to the tax. How I wish the IRS would give us discount on Tax!

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