Same idea, opposite defaults
Both VAT (value-added tax) and US-style sales tax exist to collect a percentage of a purchase for the government, but they default to opposite ends of a simple question: is the tax already included in the price shown on the shelf? In most VAT-based systems, the answer is yes — the sticker price is what you pay. In the US, the answer is no — the sticker price is what you pay before tax gets added at the register. That single difference in default causes a surprising amount of confusion for anyone comparing prices, calculating a discount, or shopping across borders.
Calculate a percentage
US sales tax: added at the register
US sales tax is tax-exclusive pricing by convention — the price displayed on a shelf, menu, or website almost never includes it, and the actual rate varies not just by state but often by county and city on top of that, so the same $20 item can ring up differently depending on exactly where it's purchased. This is why an American shopper is trained to expect the final total at checkout to be somewhat higher than the sum of the listed prices, and why a receipt itemizes tax as its own separate line rather than folding it into each product's price.
VAT and VAT-style consumption taxes: baked into the price you see
The UK and the European Union use VAT specifically, a tax collected incrementally at each stage of production and distribution, with the final consumer-facing price legally required to display the tax-inclusive total — what you see is what you pay, full stop. Many other countries outside the US, including Brazil, Vietnam, and China, similarly build their own consumption tax into the displayed price rather than adding it separately at checkout, even where the specific system, name, and collection mechanism differs in the details from the EU's VAT model. The practical result for a shopper is the same across all of them: the number on the price tag is the number you'll actually pay.
Why this changes discount and refund math
A "20% off" sale means genuinely different arithmetic depending on which system a price came from. On a tax-inclusive price (VAT-style), 20% off a $100 item is simply $80 — the discount applies to the number you already see, and that's the final price, tax and all. On a tax-exclusive US sales-tax price, 20% off the $100 sticker price brings it to $80 before tax, and the actual amount charged at checkout is $80 plus whatever the local sales tax rate adds on top — meaning the "20% off" price and the final amount paid are two different numbers. Refunds work the same way in reverse: a VAT-inclusive refund returns the full price paid, tax included, in one number, while a US sales-tax refund often needs the tax portion refunded as a separate line alongside the item's pre-tax price.
Work out a real discount
A worked example across both systems
Say an item is listed at $100 in both a VAT-inclusive market and a US sales-tax market with an 8% local rate. In the VAT-inclusive market, $100 is the final price — a 20% discount brings the checkout total to exactly $80. In the US market, $100 is the pre-tax price — the actual checkout total before any discount is $108. Apply the same 20% discount to the $100 sticker price and the total becomes $80 plus 8% tax on that discounted amount, or $86.40 — a different final number than the VAT market's $80, even though both started from an identical-looking $100 price and an identical-looking 20% discount.