When I was in Canada where the sales tax was 15%, my dad taught me a simple way of calculating the ridiculously high government sales tax. Take 10% of everything you buy, add an additional half of the result and that’s the taxes you are paying. Now, add that on top of the purchase price and that’s the true cost of ownership.
The tip worked well, but now that I’m in California, a 7.75% sales tax isn’t so easy to calculate. I could bring a calculator with me, but is it seriously a viable option? Am I supposed to use it on every item that I see on the menu before I decide?
To make matters even more confusing, every county has a different sales tax percentage. I used to live at the border of two counties, and it always amazed me that anyone would shop at the department stores that had the higher sales tax. The 0.50% may not sound like much, but paying more unnecessarily is never sound decision making no matter how you look at it.
If I had my way, the government will mandate that sales taxes be included in the advertised price. As a consumer, it’s not as important for me to know what the sales tax is on every bill. What is critical though is how much I need to spend to buy a certain product, not how many line items make up that shirt I’m interested in.
Gas prices are already treated that way, so the nation clearly has the infrastructure to manage the process. Speaking of gases, can you imagine what it will be like if sales taxes were added on top of the advertise price?
Car owner: I’m going to fill her up with $20 since that’s all I have with me.
Gas Pump Reads: Total – $21.55. Please pay at the register.
Car Owner: What?!??
No matter how you look at it, not knowing the real cost of ownership is bad for the consumer. Here are a few more reasons why we need sales taxes to be embedded into the advertised prices.
- Less Confusion and More Clarity – Who in the right mind can always process sales taxes with every purchase? You might think you are buying that TV for $919, but it’s actually more than $1,000 (oh better get a bigger loan from the credit card company now).
- The Cost of Opening a Retailer in a High Sales Tax Location Reduces – While the retailer still needs to pay higher sales taxes, at least consumers like me will not go out of our way to avoid it. As a business owner, it’s just one less customer perception problem I have to worry about.
- Less Illegal Tax Evasion – A major draw for online shopping is that there are no taxes, yet the law actually requires us who buy online to still pay sales taxes (we are supposed to report it). I doubt anyone actually pays, but if it’s already embedded in the sales prices, it would level the playing field.
- Promotes Responsible Spending – The retailers are going to retaliate this proposal. Why? Embedding the sales tax is like increasing the price for every product of theirs without adding to profits. There will be less people buying and for regular folks like you and I, that’s not a bad thing at all. The bottom line is that it should be downright illegal to tell me that a shirt cost $49 when I have to pay closer to $55, period. It’s no wonder why people in America spend more than most other nations. None of us even know how much we are paying until we actually see the bill.
This is part of the Government’s Opportunity of Improvement series where I discuss every Friday areas that our great nation could improve on. Please let me know whether you agree or disagree by commenting below. I look forward to your insights.
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{ 16 comments… read them below or add one }
In the early 90s (in my part of Canada), I remember Woolco (which got taken over by Wal Mart in 1993) briefly tried incorporating the sales taxes into the marked prices. However, this didn’t last long because it gave the illusion of higher prices and hurt their sales (they don’t set prices at 19.99, etc. for nothing!)
Other notes:
1)the 15% was actually an improvement in the provinces that adopted it because beforehand the provincial and federal sales taxes were calcultated seperately, causing the consumer to pay tax on tax and making it extremely difficult to calculate the true cost of an item (in my province it was the purchase price plus 11% plus 7%). Some didn’t want the switch because certain basic items carried one tax but not the other. The harmonised sales tax (HST) is overall lower, but applied to more items.
2) Not all provinces in Canada have the same sales tax. Some still aren’t blended and Alberta doesn’t have provincial tax at all.
3) The federal tax (GST) has gone down to 5%, making the HST 13% now (which ruins your nifty calculating algorithm). I still use the 15% trick to give myself a general idea.
4)The HST was supposed to be called the blended sales tax but got changed at the last minute when they realised that it shorted to BST, which everyone was aptly calling the B** S*** tax.
All that to say that I agree with you. We can’t rely on the businesses themselves to include it in their prices, so it would have to be legislated in order to have a level playing field. When I was in France, I thought it was great that the price I saw was the price I paid. So much easier to budget.
I totally agree with adding the sales tax to the advertised price. It’s not just France that Melanie stated. It’s actually all over the world.
You would think that a country like U.S. can actually figure out how to put the taxes into it so we don’t have to worry about bringing our calculators.
In Italy, where I spend 4 months of the year, taxes are included in prices. The only problem for me is knowing whether I am paying taxes on fresh food or not. Taxes there are at 20%! And the cost of living is higher than here on Long Island NY.
Interesting post. Thanks.
The first adjustment I had to make when I came to the states was the stupid sales tax. I came from Hong Kong and I couldn’t believe that Americans accepted the fact that all prices are basically wrong since that’s not the amount you have to pay.
I agree with the premise of embedding taxes into the total price, but why are businesses responsible to collect taxes for the government? THAT’S the real question we should be asking.
I see collecting taxes for the government as just the price to do business in this country. It’s the same reason why I have to pay the landlord to rent the property for example.
While I rather not have any cost, there are some things that I just need to pay. I don’t however want to pay for taxes and then see it wasted on things like bailouts and unreasonably high salaries for some union workers (like the $100k mailman in California that I heard about a few months ago)
That is a great plan. I do like one aspect of having to pay taxes separately, however. It puts it out there where the consumer can see it every time. That way they think about how high their taxes are. If it was just buried in the purchase amount it would be all too easy to forget how much taxes really add to the purchase price. It’s similar to how withholding works. Can you imagine the hue and cry if Americans actually had to write a check to the IRS every month for their income taxes!
I agree that having taxes included would be nice. It’s always a pain to try and figure it out yourself. And it would be so simple to do.
Adding the sales tax so its explicitly stated for the consumer is an absolute must!
From an online perspective, calculating online sales can actually be somewhat tricky because the laws are still somewhat vague and implementation is somewhat subjective.
The laws state (vary by state/counties/district) that an Internet seller does not have to collect sales tax unless it has “tax nexus” or a substantial presence with the buyer’s state. As you might imagine, whether a seller has nexus is not always an easy determination (and NY has a new law that would expand what constitutes nexus — although the law is now being challenged by Amazon.com). In addition, even if a seller has tax nexus, it only has to collect sales tax if it is the type of transaction that is subject to sales tax in the applicable state. Information services are taxed in some states (like NY and NJ) but not others.
And, I can tell you from my auditing experience, there are a lot of companies that do it the wrong way. So, be careful out there.
I don’t agree with you that stating taxes are essential just because of online purchases. It should be the businesses’ problem to figure out how much to charge us when we buy based on where it’s shipped. It’s difficult right now because, like you said, the laws are vague. If they are clearly stated, then there shouldn’t be any questions on how it’s done.
The law could be as simply as taxes will be reported based on where it’s shipped. Then the online retailer can just deduct the taxes off the amount that they are getting from their customer. You may think that’s not fair but businesses have sophisticated enough tools to balance the price based on all the different sales taxes.
I don’t want sales taxes to be added “in addition” to the advertised price. I have no problem, and probably prefer, for it to show up in the bill but taxes should be a subset (sort of like the example that the author gave in gas).
From one of the few states that does not have a sales tax, I don’t have to deal with this – but I do deal with that pesky state income tax that gouges us unreally – like not allowing most of the deductions that the Fed tax allows.
About figuring sales tax in your head – figure 10% and then subtract a quarter of the 10%…. and add that figure to the price. Or just round it down – figure 10% and add a little less…
One thing I like about sales tax is that it is a “voluntary” tax… you only pay it if you buy the item… don’t buy the item, don’t pay it. Frugal people would pay very little sales tax. As opposed to the income tax which is not ‘voluntary’ in my book – if I earn the money, it’s taxed. The only way around it is to earn less and pay less tax. I would GLADLY pay sales tax IF and only if my state would do away with this state income tax…. I’d come out SOOOOO far ahead!
dream on 
Boy, are you SPOILED !!
Living in one of the greatest TAX HELLS…WISCONSIN, we pay an almost 7 % State Tax PLUS a sales tax of 5.6% in Milwaukee County….and the liberals want to squeeze even more out of us for their hare brained special interests. I guess it will end eventually when they run out of other peoples money.
Sadly, the tax is 9.25% in So Cal
-Mike
There’s a tax reform plan called HR-25 that would replace the income tax with a retail sales tax and your idea is actually in this bill. The tax is listed as “inclusive” which means it’s included in the price of every product you buy.
Not to mention it replaces the terrible income tax system and repeals the 14th amendment of the United States.
It’s called the FairTax.
More info at http://www.fairtax.org – check it out!
Many European countries have a Value Added Tax system, which includes taxes in the advertised price. On top of that, the stores are smart and price things in round numbers, usually ending in .00 or .50. It makes addition much easier. There is no incentive to do that in the US because sales tax would mess up the round numbers anyway. And the stores figured out they would get more customers at $19.99 than at $20.00. Just like how gas stations advertise prices down to the 1/10 of a cent. Stupid, but they all do it.
I much prefer paying the price on the tag. But there is no incentive for the stores because it would take extra book keeping and their stores that charged the price on the tag would lose business to the stores that added tax after the fact – because the prices would appear lower.
The added sales taxes after you arrive at the register is a stupid intent to fool the consumer. As always in the US, it’s all about consumption. So if there’s a way to make something more appealing to the consuming zombie of America, corporate America will definatly not leave it unatempted.
One of the gimmicks to make us consume more and look at prices more positive mooded is the value added sales tax. In Europe sales taxes must be included into the shelf price. It’s European law. Any retailer not confirming with that standard is liable to be charged with fraud. Europe does not want the fooling arround and the confusing of the customers. They want transparency and sticking to promises. If the store tells you your shoes cost 55$ at the shelf, then thats what the damn shoes will cost you. Not one cent more.
In my opinion sales tax could be increased slightly but should be added into the final price displayed at the shelf and it should also be unified for all 50 states. 12% for all 50 states. No income tax increases and no business tax increases. Increasing sales tax is good because if people want to consume more and use resources more, pollute our planet more, they should also pay more for those downsides of consumption. Thats the minimal ethical, moral and enviormental standard that we could set ourselves in regards to our relentless consumption.
Including the increased sales tax into the price, should be the minimum moral and ethical standard of the government, retailers and manufacturers in regards to transparency, honesty and ease of shopping for the consumer.
As long as the current practices are kept up by the retailers and the government, it’s summerizes to no more than a fraudulent act against us consumers. That’s all I have to say to this issue.
Have a good day everyone. Take care.