Question

Valley, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law provides that the retail sales tax collected during the month must be remitted to the state during the following month. If the amount collected is remitted to the state on or before the twentieth of the following month, the retailer may keep 3% of the sales tax collected. On April 10, 2017 Valley remitted $203,700 tax to the state tax division for March 2017 retail sales. What was Valley's March 2017 retail sales subject to sales tax?

a. $4,074,000.
b. $3,990,000.
c. $4,200,000.
d. $4,112,500.

Answer 1

To calculate the total retail sales subject to sales tax for Valley, Inc. for March 2017, the amount remitted ($203,700) was divided by the effective tax rate, considering the discount for early payment, resulting in total sales of $4,200,000.

Step-by-step explanation:

The student is asking for help in calculating the total amount of retail sales subject to sales tax for Valley, Inc. We know that the state sales tax rate is 5%, and that Valley can keep 3% of the tax collected if remitted on or before the twentieth of the following month. The company remitted $203,700, which represents 97% of the tax collected for March 2017. To find the total sales, we make use of the sales tax formula:

Amount of sales tax after discount = Total sales × Sales tax rate × (1 - Discount percentage)

We can re-arrange this formula to find the total sales:

Total sales = Amount of sales tax after discount ÷ (Sales tax rate × (1 - Discount percentage))

So, by inserting the given figures into our formula, we get:

Total sales = $203,700 ÷ (0.05 × (1 - 0.03))

Total sales = $203,700 ÷ (0.05 × 0.97)

Total sales = $203,700 ÷ 0.0485

Total sales = $4,200,000