How Discounts Are Calculated
Two formulas cover every discount scenario. For percentage discounts: Discount Amount = Original Price × (Discount% / 100), then Sale Price = Original Price − Discount Amount. For fixed-dollar discounts: Sale Price = Original Price − Dollar Amount Off.
A 30% discount on a $120 jacket: $120 × 0.30 = $36 off. Sale price = $120 − $36 = $84. A $25-off coupon on the same jacket: sale price = $120 − $25 = $95. The percentage discount saves you more in this case, but that flips on cheaper items—$25 off a $50 item (50% off) beats 30% off ($15 savings).
Quick mental math shortcut: to find the sale price directly from a percentage discount, multiply the original price by (1 − discount/100). For 25% off, multiply by 0.75. For 40% off, multiply by 0.60. Faster than subtracting.
Stacking Discounts: How Multiple Discounts Compound
Two 20% discounts do not equal 40% off. They compound. A $100 item at 20% off = $80. A second 20% off applies to $80, not $100: $80 × 0.80 = $64. Total discount: 36%, not 40%. Each subsequent discount applies to a smaller base.
| Stacked Discounts | Expected | Actual | Sale Price ($100) |
|---|---|---|---|
| 10% + 10% | 20% | 19% | $81.00 |
| 20% + 20% | 40% | 36% | $64.00 |
| 25% + 15% | 40% | 36.25% | $63.75 |
| 30% + 20% | 50% | 44% | $56.00 |
| 50% + 50% | 100% | 75% | $25.00 |
The formula for stacking: Final Price = Original × (1 − d1/100) × (1 − d2/100) × ... for each discount. Order doesn't matter mathematically—20% then 30% gives the same result as 30% then 20%—but some retailers apply coupons before or after store discounts, which can affect the base price if minimum-spend thresholds are involved.
When Is Sales Tax Applied: Before or After the Discount?
In all 50 US states, sales tax is calculated on the discounted price, not the original. If a $200 item is 25% off, you pay tax on $150. At 8.875% (New York City rate): $150 × 1.08875 = $163.31. You never pay tax on the $50 you didn't spend.
This matters more than most people think. On a $500 purchase at 30% off with 10% tax: Tax on full price would be $50. Tax on discounted price ($350) is $35. That's $15 in hidden savings beyond the discount itself. The higher the tax rate and the bigger the discount, the more you save on tax too.
Exception: mail-in rebates. Most states tax the pre-rebate price because you pay full price at checkout. Manufacturer coupons sometimes trigger different rules depending on the state. Store coupons and percentage-off sales always reduce the taxable amount.
Is the Discount Worth It? Thinking About Price Per Use
A 60% discount sounds amazing until you realize you're buying something you'll use once. A $200 jacket at 60% off ($80) that you wear 100 times costs $0.80 per use. A $40 novelty gadget at 50% off ($20) used twice costs $10 per use. The jacket is the better deal even though the gadget had a smaller price tag.
Before committing to a sale purchase, ask: would I buy this at full price? If not, the discount is costing you money you wouldn't have spent otherwise. Saving 40% on something you don't need is still 60% more than $0.
To calculate what a retailer needs to charge to cover costs after discounting, use the markup calculator. If you're running a business and want to know how many discounted units you need to sell to stay profitable, check out the break-even calculator.