Talk:Sales tax

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Contents 1 Origin of Sales Tax? 2 Regressivity 3 Sales tax or Excise tax? 4 Final end user and sales tax coverage

[edit] Origin of Sales Tax?

When the USA was young, Britain had taxes and made everyone pay them. They noticed that not everyone was paying, so they put sales tax so that people had to pay for whatever they bought. It was an inexcusable action, but they didnt care. Thanks --72.146.173.208 23:13, 14 September 2007 (UTC)

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Surely this is the same as VAT or is VAT the european name for it? Either way, both pages need to be looked at. Ed g2s 15:17, 14 Aug 2003 (UTC)

According the VAT article they are a variant of conventional sales taxes, I'm not quite clear what the difference is, however. The VAT article also calls Canada's GST, which is locally refered to as a sales tax, a VAT. - SimonP 16:09, Aug 14, 2003 (UTC)

[edit] Regressivity

With regards to this pragraph:

"Sales taxes are generally regressive, that is, poorer people tend to pay a greater percentage of their income in sales tax than richer people, because they tend to spend a far higher percentage of their income. In some locations, items such as food, clothing, or prescription drugs are exempt from sales taxes ostensibly to alleviate the burden on the poor. Some of these exemptions (such as exemptions for clothing or prescription drugs) actually may make the tax more regressive, since poorer individuals may spend a smaller percentage of their incomes on these items than do richer individuals."

The progressivity of a tax should be measured in whatever is being taxed. A sales tax does not tax a poor person's sales at a higher rate than a rich person's. It is completely flat.

Measuring the progressivity of a sales tax in income is completely arbitrary.

69.19.2.225 12:03, 14 Mar 2005 (UTC)

Measuring the progressivity of a sales tax in income is exactly the definition of progressivity. Please see Regressive tax.

Rmhermen 14:45, Mar 14, 2005 (UTC)

So this article has a lot of flaws in it. But the regressive thing really isn't one of them. That depends on how you measure the regressiveness or progressiveness of a tax. So consider a rich person A and a poor person B. Rich person A makes $100, and poor person B makes $11. Suppose the sales tax is %10. Suppose person A spent $20 on goods subject to a sales tax, and saved the rest. So he payed $2 in tax. Suppose person B spent $10 and paid $1 in tax. So if we measure regressiveness as the share of income a person pays in taxes, then a low earner in this scenario is paying 9% of his wages in tax, and person A is paying only 2% of his wages in tax. Even though the tax rate on goods was supposedly equal, and person A paid more in taxes.

Debomachine 22:36, 4 August 2006 (UTC)

Rmhermen, measuring the progressivity of a sales tax in income is absolutely NOT the definition of progressivity. The definition that you cite for regressive tax is: "a tax imposed so that the tax rate decreases as the amount to which the rate is applied increases." Income is not "the amount to which the rate is applied".

Debomachine, the calculation is rate = tax\ base. There is no flexibility so it cannot "depend" on how you figure it. You have three components to this calculation, rate, tax and base. The rate is the tax percentage. The tax is the amount of tax levied. The base is what is being taxed (in the definition, "the amount to which the tax is applied"). Those are the only three components allowed to be used in figuring regressivity or progressivity. You, on the other hand, are adding a fourth component, that being the base of an entirely different tax model, income tax. You are taking the tax applied against sales and, instead of dividing it by sales ("the amount to which the tax is applied") you are dividing it by something (income) to which it is categorically NOT applied. For this reason, as the first poster correctly states, the resulting relationship is entirely arbitrary. You might as well divide the tax by one's shoe size.

If you want to create a non-arbitrary relationship between sales tax and income, you have to convert the income into the base by defering the unspent portion - which is the part that you are not doing.

Another way to look at the mistake is to understand that by using the wrong base in the calculation you end up not taxing income yet to be spent - and you have to do that if you want to convert income into the base. That is, all income will eventually be spent - so if you are not going to tax it now, you have to reduce the income by the amount not spent (which brings you back to the amount spent which makes your rate flat again). Conversely, if you are going to tax it now then you have to charge the sales tax to all of the income (which will bring your rate back to flat).

It is the same calculation as defered taxes on income, like 401(k) contributions in the US. When you contribute to your 401(k), your taxable income is reduced by the contribution amount.

So if you make $100 and are defering tax on $20 of it (because you made a 401(k) contribution), you are taxed on $80. Then later you will be taxed on the other $20. So if the income tax rate is 25%, you will pay $20 now and $5 later for a total of 25 on 100.

But if you apply the same logic as your regressive sales tax calculation, you would be ignoring the tax that comes later and say that this person was only taxed $20 (because that's what they paid right now) therefore it is a rate of 20% (and it is obviously not a rate of 20%, it is a rate of 25% - thus the mistake). Effectively, you are saying that the $20 contribution was tax free. But it is not. It will be taxed when it is spent. Just like all the income that you are not taxing (that which was unspent initially) in the mistaken regressive sales tax calculation.

The mechanics of the sales tax is exactly the same as defered taxes on 401(k) contributions. The income that is not taxed initially is NOT tax free as your calculation asserts. It is tax defered.

So if you are going to figure its rate, you can tax all of the income now and divide the tax by the income or you can tax just the spending now and divide the tax by the spending. In either case, of course, it will come out to be the same rate because it is a flat rate.

In the example above, this would be like dividing the 20 by 80 or the 5 by 20 or the 25 by 100. But you cannot divide the 20 by 100 which is what you are doing when you call sales tax regressive.

Many people make this mistake so it is definitely worth mentioning. But it has to be pointed out that it is based on a mistake in calculations. This is not a matter of opinion. There is nothing controversial about it. Sales tax is flat, by definition. Let's replace the politics with math.

--72.241.183.173 14:50, 22 April 2007 (UTC)concerned mathmetician

In some sense, it's trickier than that. While tax as a percentage of expenditures is certainly flat, a sales tax (like an income tax, in fact) can become regressive when investment is considered. Consider what happens with a 10% sales tax rate with a person who makes 110$ a year a spends $100 a year. After 10 years he has bought $1000, 91% of what he earned. Then consider someone who makes $150 a year, spends $100 (with $10 tax), and invests $40 (at 5% interest). After 10 years, he will have bought $1000 and saved $528.27, which he can now use to buy $480. In a sense, he has bought 1480/1500=98.7% of what he earned. (edit: 480*1.1=528, which is the correct calculation for sales tax. My point: the interest may be taxed, but taking out the taxes at the beginning can reduce the ability to invest and gain interest).

Obviously this analysis doesn't consider the time value of money, but when we consider investments like the stock market (which has historically fared a lot better than its risk would imply), the idea still can hold. 71.198.7.182 09:05, 8 August 2007 (UTC)

I'm not sure I understand your logic. The $528.27 (savings plus interest) is taxed at 10% when spent, so he can now use $475.44 (not $480). Interest is taxed as well when it becomes consumption. Morphh ^(talk) 12:54, 08 August 2007 (UTC)

[edit] Sales tax or Excise tax?

Article reads, "In the United States, it is nearly always explicitly added on and not included in the price, a notable exception is sales taxes on gasoline."

Do we want to refer to gasoline excise taxes at the pump in the US as "sales tax"? Thank you. Have Gun, Will Travel 02:54, 7 February 2007 (UTC)

I've always known it as an excise. Morphh ^(talk) 03:06, 7 February 2007 (UTC)

Me too. I see Sales tax has a cleanup tag; I'll probably try giving it a work over (unless you got any other suggestions?). Thanks. Have Gun, Will Travel 17:27, 7 February 2007 (UTC) Actually, sales tax is included at the pump due to the fungible nature of the commodity. No one dispenses the same amount each time, so it's easier to simply tack on the sales tax as the gas is pumped. Technically speaking, the pump price in most states includes BOTH sales tax and a state excise tax, plus the federal excise tax. A dollar amount is the basis of the sales tax, whereas a gallon measure is the basis for the state and federal excise taxes. 8-15-07 --Marc

Why is tax such a big thing, everyone has to pay it; it is "natural."What I think is that it is stupid and unnecessary. —Preceding unsigned comment added by 67.82.157.6 (talk) 23:34, 30 September 2007 (UTC)

[edit] Final end user and sales tax coverage

So how does a sale tax vendor work out if you are the final end user? On a VAT system, everyone pays VAT on all purchases, and businesses can then pay the difference between collected and paid VAT. Under a sales tax, what stops someone from buying a computer for work use - presumably paying no sales tax - and then using it for private use? —Preceding unsigned comment added by 60.234.231.99 (talk • contribs)

I would hope the jail time and/or the closing of the business when they were caught for tax evasion. Most sales tax systems require detailed record keeping by business, which are audited by the taxing authority. Sales tax laws vary on what can be purchased and how and by what type of company. Small items like a computer may be something easily evaded and is likely an acceptable and expected level of evasion, which would be a minor impact to the tax base. Morphh ^(talk) 14:42, 31 March 2008 (UTC)