Nearly every business sells a widget for $100 because that is what the market will pay. It costs every widget maker $88 to manufacture a widget. Widget makers want an 8% after tax profit. The income tax rate is 33%. With a pre-tax profit of $12 the 33% income tax is subtracted: $12 - $4 = $8.
One widget maker seeks only a 5% after-tax profit. Each widget cost him $88 to manufacture. He realizes that if he sets his widget sell-price at $92.40 his pretax profit will be 5%. When he subtracts the 33% income tax his after-tax profit is $2.95. Thus the widget maker makes a bit more than 3% after-tax profit.
But the widget maker wants a 5% after-tax profit. So he recalculates what the sell price of the widget must be in order to recoup the projected 33% income tax. His calculations are that he must add $2.16 to the sell price. $2.16 is the 33% income tax paid on $6.56 pretax profit. Subtract the $2.16 income tax and his after-tax profit is $4,40. Exactly 5% after-tax profit. The widget maker will sell his widgets for $94.56 each.
Clearly the market will pay $94.56 for his widget. Especially since that price is less than the $100 per widget the market has demonstrated it is willing to pay. The widget marker considered the income tax he expected to pay in the future and included that into his final selling price of a widget. He embedded the income tax into the final price of the widget so that he could, in all expectations, receive his desired 5% after-tax profit.
A widget maker has a breakeven price of $100 per widget. Every dollar
above $100 he is able to successful sell his widget at, thirty-eight cents
of each dollar is an income tax liability. For the widget maker to earn
one dollar after-tax profit per widget he must sell each widget for more
than $101. To earn his $1 after-tax profit he will have to sell each
widget for about $101.50. The fifty-cent projected income tax is embedded
into the selling price of the widget. The consumer pays the fifty-cent
income tax and the widget maker remits it to the government.