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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Related Articles at Personal Finance Blog by Money Ning:
- Government’s Opportunity for Improvement - Intro
- Taking Advantage of Different State’s Sales Tax
- What Does Fiscal Stimulus Mean?
- Right Time to Buy a House or Just Bad Money Management?
- Why is Our Bailout Money Going Towards Paying for Executive Bonuses
Read more of Government Improvement - Let Businesses Deal with Sales Tax…
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