Charlene is looking at a pair of earrings that costs 10$. Find the totlat cost of the earrings if there is a 15% discount and the sales tax is 8%. Does it matter if the discount is taken before if after the sales tax is added?

Correct Answer (Short 9.18)

Remark

The correct method is to take the reduction and then add the sales tax. It turns out you get the same answer no matter which way you do it. But the IRS is only interested in the tax put on the eventual selling price and not on any theoretical price you may have gotten before the reduction

Obviously the government would prefer the second method (they get more taxation income) but so far they have not closed that loophole.

Correct Method

Cost of earrings = $10

Find 15% reduction 10*15% = 10*15/100 = 1.5 dollars.

Find the reduced price

10 - 1.5 dollars = 8.5 dollars.

Find the tax on 8.5 dollars.

Amount Tax = 8.5 * 8/100 = 0.68 dollars

Add this onto 8.50

Total Cost = 8.50 + 0.68 = $9.18

Answer to Question about order

Now suppose you take the tax first and add it on.

10 * 8/100 = 0.80

Add this onto the selling price 10 + 0.80 = 10.80

Now take the 15% reduction

10.80 * 15/100 = 1.62

Subtract this from the taxed amount

10.80 - 1.62 = 9.18 which doesn't seem to matter.