Dave's ESL Cafe's Student Discussion Forums

[BourneNOIR]

Hi all! Have not been back in a while, hope everyone's doing well.

I have been in the US for a great part of my life, but there's still one question that has been bothering me forever. I know that there are many knowledgeable people in this forum that may be able to finally put my question to rest. The question is why don't the prices in most of the products include the sales tax?

I know sales tax in the US is governed by the States, but that doesn't inhibit stores from adding the sales tax into the final product price. Some products are taxable and others are not, but in the end the tax from the taxable goods are added into the total purchase price. It shouldn't make a difference if the tax is already included in price if the store has the ability to keep track of which taxable items were sold.

Gas stations and movie theatres already do it, why not others? In some countries like Japan and Taiwan the price always include tax. In Japan, sometimes they show two prices, with and without tax.

This question has been bothering me for a long time since it is sometimes hard to estimate how much I will be spending at the checkout when I'm paying cash. This also makes me feel extremely uncomfortable that the TV commercials are putting out false advertisements by saying "You can buy this meal for less than a dollar!" when in fact, if I pay just $1 for a $0.99 hamburger, the store wouldn't sell it to me because I have to pay the extra $.06 sales tax @ 6%. That's just wrong.

Thanks to anyone who can shed some light on this...

P.S. If it's not a legality issue I'd rather open a store that features prices with tax included to make shopper's lives much easier and to push for this type of pricing structure.

[Bob S.]

It all depends on how the tax is applied, and each system is a little different.

Gas tax is a tax per gallon. so if the tax is 18.4� per gallon and you buy 10 gallons, then you pay $1.84 in tax. Same with movie tickets and such.

With store merchandise, the tax is on the final sale total, and the round-off value becomes important. Say for example, you purchased a blank DVD for 99�, the 6% tax would actually be .0594� which rounds off to 6�. But say you were stocking up and bought 20 blank DVDs. Then the tax is not $1.20 but rather $1.188 which rounds off to $1.19 (you save 1�). If you were making a large purchase of multiple goods (lots of office supplies or grocery shopping for your family for the week), all these little fractions of a cent can start to add up. You don't know for sure what your final sales tax will be until all these things are totaled. Why pay more if you don't have to?

Food purchases are tricky in California at least (laws vary by state). Food itself is not taxed. Carbonated beverages though are not considered food but something of a luxury chemical (you don't need carbonated water to live), so it is taxed. Food purchased "to go" is regarded as food so should not be taxed, but the same food eaten in a restaurant is a luxury so it is taxed (at least that was what I was told when I worked in food services 25 years ago). Every business owner has to keep track of all this taxable stuff!

Finally, local city governments are also allowed to add to the sales tax to raise revenue. Typically they add an additional .25% or .5% to the existing state sales tax. So a department store in one town may have to charge 7.5% sales tax, but the same chain store in the next town must charge 7.75% sales tax. The central office that prints up the sales signs and price tags would have a terrible time printing different price tags for the same item in stores that may be just a few blocks from each other but in different municipalities. Easier to print one price for everybody. We customers are used to it and are just ready to pay a little above the listed price.
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Krauthammer's Razor (with apologies to Occam): In explaining any puzzling Washington phenomenon, always choose stupidity over conspiracy, incompetence over cunning. Anything else gives them too much credit.

[BourneNOIR]

Ah... thanks for the explanation, Bob. So I assume that products with sales tax included in the prices are taxed per unit, not the total sales price?

Your examples certainly help to clarify the complexities involved. After analyzing your examples a bit (I�m bored and very curious) I think the savings you described stems from the effect of rounding, not the way the tax is applied to the final total amount because had the price been $1, then there won't be any savings at all. Additionally, I realized that the reasoning goes both ways and it all depends on how much rounding was used to get the tax. Sales tax for 92� is 6� (0.0552�) and 5� for 91� @ 6% (0.0546�). If you bought 20 of item A @ 92� ($19.504) you�d save 10� had the price included tax @ 98� ($19.60). However, if the price is 91� ($19.292) you�d lose 9� had the price included tax @ 96� ($19.20).

$1.06 ($1 + $0.06) should be the optimum price with tax (in the above scenario) with no tax gained or lost. But I suppose 99� is a more attractive price to customers while maintaining higher revenue than 92�.

Thanks again for the explanation!

[Bob S.]

[pugachevV]

I think the reason they tell you the price without including the sales tax is because it makes the product sound cheaper, also it shows how venal the government is.

[pdolivas]

the reason that sales tax is not included in the price is to lull the consumer into spending more by making them think the price is low. When factoring in the tax, the prices isn't really all that great, but the general consumer doesn't seem to care about taxes. A good example is gasoline. Why do people drive all over the place to find gasoline cleaper than other stations? Most fuel retailers are all within a few cents of each other if not the same exac price. But, people will still drive 10 miles to save 2 cents a gallon. That extra milage just negated the cost savings!