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Posted by on Mar 13, 2009 in At TMV, Economy, Politics | 3 comments

The Bizzare World Of Sales Tax

As we head into an era where it is increasingly likely that sales taxes will be raised in many states I thought it might be interesting to explore the somewhat bizzare world that is the sales tax.

I was prompted to write this post because of an experience I had recently in buying my lunch. I’ve been taking advantage of the Subway $ 5 foot long promotion and noticed that sometimes I was charged $ 5 and sometimes I was chargedĀ $ 5.40 (IE I was charged sales tax).

I asked about it and was told that if I got the sandwich cold then it was not taxable but that if I got it toasted it was considered ‘warm meat’ and thus was taxable as prepared food.

I have also been told by friends that if you order coffee then it is taxable IF you have it in the Starbucks but if you order it to go then it is not taxable (not being a coffee drinker I cannot confirm this one).

Other quirks include the fact that if you hire a cleaning service for your office or home that cleaning the carpet is subject to sales tax but cleaning the drapes is not taxable, custom made software is not taxable but prepackaged software is taxable and of course we have all the bizzare internet rules which decide what is and is not subject to tax.

So chime on in with your own experiences with odd sales tax rules, see who can come up with the most bizzare one

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  • pachigordo

    Your experience is not uncommon but remember sales taxes are covered under state law and levied solely by states and sometimes state law permits local cities and counties to add to a state-wide tax. Most states exempt food for consumption at home, prescription drugs, and a varied litany of special products. In this manner, sales taxes are not as regressive as initially thought. Some states imposed excise and sales taxes on the same products. Food eaten at a restaurant or fast food place is subject to sales tax but carry-out orders generally are not.

    The federal government has not enacted any national sales tax though some conservatives pushed hard for it in the past. There is a provision in the Federal income tax laws that you can deduct some of the local sales taxes you paid but most people do not keep all those receipts. In Europe there are value-added taxes (VATs) but few if any sales taxes. The VATs are imposed at each level of processing, maufacture and distribution. The final price to the consumer reflects all underlying taxes. VATs raise far more revenues than sales taxes.

    Many states rely on sales taxes for much of their revenues to operate state governments. Sales taxes are unfortunately closely tied to the economy. Thus with falling spending on all items, particularly big-ticket items such as cars, appliances and electronics, the states are all in the red. This is the case in AZ and if it would only rely on a balance of other taxes such as property (real estate) and income a bit more, the widely-varying sales tax revenues would not be so crucial in balancing budgets.

    Sales taxes are pretty straight-forward and easy to collect since most merchants, retailers and sellers have to collect, report and pay them on a regular basis. There are other things in our economy and overall tax system to think about than state sales taxes, but they should be part of any overall rational tax system.

    Marc Pascal in Phoenix, AZ – a regular guest voice on TMV

  • Janjanjan

    We’ve lived in 5 states in the past 10 years, and traveled extensively in 30+ states, and found that each state has its own peculiar way of levying and collecting sales tax. And, then, of course, there is internet shopping, which is mostly exempt from sales tax unless the company has a physical presence in your state. Bottom line–states need a certain amount of money to provide basic services. It’s nice when some of that money can come from visitors who can’t vote the scoundrels out, as Cleveland has certainly discovered. (Check out their hotel taxes.) But, usually, residents will pay most of the taxes required. The trick is to make taxes as fair as possible, while ensuring that bills can be paid. I suspect that many states will be revisiting their exemptions and exceptions as they are forced to close the revenue gap.

  • Jim_Satterfield

    Patrick, it’s bizarre, not bizzare.

    One of the things that happens living in the Kansas City area is having to account for Kansas and Missouri. I ran the AR system for a small office supply business many years ago. While it was on the Missouri side there were many customers in Kansas. Was the order delivered? Or did they pick up? Different tax rates apply. Different rules, too. Missouri taxed services and Kansas didn’t. If we repaired something for them on site there were no taxes. In the store meant there was. Etc., etc.

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