Posted by Mike Smith :: February 28, 2009 @ 5:58 am

Those of us who have taken budgeting to the extreme are always looking for new ways to get even more insight into our expenses. Much like tracking cash is probably more detail than most budgeters require, so too is tracking sales tax. But for those who have taken all other aspects of their budgeting to the extreme, tracking sales tax may be a welcome addition.

I tend to be more aware of the sales tax I pay than most other people. I suppose this comes from the fact that I used to live in New Hampshire, which is one of the tax-free states. I got used to purchases being free from sales tax and so now paying it seems like an unnecessary expense. I often leave a store wondering how the items I selected could have possibly totaled to the amount I paid, only to discover that the sales tax was the hidden item I was forgetting.

The idea to track sales tax came to me after a recent visit to the grocery store. I typically split receipts into various categories like groceries, household items, cleaning supplies, etc. I use rough numbers and tend to bulk the tax into the category with the largest percentage of the total purchase. Since trips to the grocery store usually have groceries as that category, sales tax gets lumped in with that group. But groceries generally aren’t taxed, so putting the sales tax in this group increases their reported cost and decreases the true cost of items that are subject to the tax.

I could allocate sales tax to the individual items on which the taxes are levied, but I decided to track it as a separate expense. Doing so gives me the ability to work on reducing it in a more flexible way. If I want to cut out 5% of the amount I spend on sales tax each year, I can find that 5% among any of my taxable expenses.

Many readers will find tracking sales tax to be too fine a granularity for their budgeting needs, but some of you will surely find it useful. I found it most useful to allocate sales tax to a separate category, but how you track the expense is up to you. The important thing is to realize that sales tax is an expense that can be tracked and managed if you so desire.

Do you track sales tax in your budget?