Use tax

Here in North Carolina, on the income tax forms, we have this new (in the last few years) entry for "use tax". Essentially, it amounts to getting the consumer to pay sales tax for things purchased out-of-state.

I got to thinking about this earlier today and came to a conclusion I hadn't arrived at before.

First, it annoys me that this exists because sales tax is a tax on doing business. Consumers don't pay sales taxes; businesses do. It's not as if the state has deputized every business in order for them to collect taxes. Now, businesses generally pass that tax along to the consumer, which is fine, as it's a legitimate cost of doing business, but it's not as if we are the ones the tax is applied to. So it bothers me that the state has put the burden of sales tax directly on the consumer in certain instances. But that's really just a bother.

The real problem is that Article 9 of the US Constitution states that states shall make no law interfering with interstate commerce. (That's my pseudo-constitutionally worded paraphrase.) This includes tariffs, etc. Now, if levying a fee on purchasing products from out of state isn't interfering with interstate commerce, I don't know what is. It seems to me that this "use tax" is wildly unconstitutional.

But no one seems to have brought any action against it. Am I missing something?

But no one seems to have brought any action against it. Am I missing something?

I think no one wants to bring it up because the fix would probably be asinie federal law that would make the out of state business collect the tax for your home state and send it to them. (or something worse maybe)

Consumers don't pay sales taxes; businesses do.

In all this talk of "internet sales taxes", that one critical piece of obvious information didn't cross my mind. You're so right.

(RANT WARNING)

I own a small business in California. it's an auto repair shop, considered retail sales of merchandise and services.
the rate here (for the time) is 8%. it has changes 3 times inside one calendar year before.
so if you go buy a new CD, you expect to pay 8%......
if you go to a grocery store and buy some milk and a loaf of bread, you pay no sales tax, but add a fire log, soap or a mop and you pay tax on those parts of the purchase.
this makes sense to me, not that I like it.
weird stuff: (and I'm a little foggy on what may have changed in the last few years)
if you walk into a store and buy a pre-made sandwich that's pre-wrapped from the cooler you pay no tax, but if they offer a microwave to heat it, and you do, you pay tax.
for a short time about 8 years ago they got so nitty-gritty about what was a snak-food (taxable) and what was real-food(not a snak-food, no tax) was absurd. beyond belief.
cupcake- tax...muffin- no tax.

things I know for sure:
if you sell a taxable item and don't collect the tax, you are responsible for that tax.
if you charge too little tax, you must make up the difference.
if you charge too much tax, you must pass it on.
the basic rule in my business for what to tax on is if you can hold it in your hand, tax it. (including gases like freon or r134 for air cond.)
repair labor is not taxed, but they want you to charge sales tax for anything you 'make', like if you're in a pinch and have to make a pipe from household plumbing from two or more pieces. or if you weld two or more things together to act as a single component, such as a bracket or support. if this is the case you should tax both the amount of the supplies used and the labor. and I suck at welding !!

for the past 15 years I have handed them about $20,000 per year of someone else's money. not once have they ever said thank you.

get this-
I rent my business location.
I have paid off all of my equipment years ago, and I paid tax on it when I got it.
the city requires me to pay more tax on all of it every year, I think it's about .75%.

not only did I pay tax on the money I made to purchase the tools, and paid tax on the purchase itself, I will continue to pay tax on the tools for as long as I own and do business with them. If I live long enough, that'll really add up.

it bothers me that if you make money they tax it and they tax it again when you spend it. tax is ok, but the problem with sales tax is that if you imagine the amount of equipment involved to get a lemon to the fruit stand, and all of the equipment that supports the businesses that own the equipment that got the lemon to the fruit stand, as you can see it's nearly endless. in the cost of a lemon is the tax on truck tires, fuel, a screw driver, work boots, machines that produce glue, office supplies, you name it. the cost of the lemon also includes the cost of all the salaries of the workers involved. no problem, but the amount of the salaries should (!) be at least enough for them to live a good life, and in doing so they must make enough (after taxes) to be able to buy the things in life that they should be able to, such as a music CD. so the salaries must be inflated somewhat to account for the sales tax they(we) pay on a CD, kids shoes, toasters, a heated sandwich, lemons..............

you have to think about the other hand, too... is there not a reason that you're being taxed?

here in Ontario, Canada, there's 15% tax. That's right, 15 bloomin percent. 7% goes to the federal govermnent, and 8% to the provincial government. Our gas prices, however, are well over 40% tax. (I filled up the other day at the equivalent of $2.20 a gallon - and that was a *damn good* price compared to everywhere else at 2.40+)

But that paid for my (lacking, but still available) public school system. That paid for the road I drive on, the hospital I go to (though it's slightly different when it comes to hospitals in the US).

Paying taxes I don't have a huge problem with (though, if I spend $40 on $24 worth of gas - with the rest going to the govm't...I do have a problem there) however the handling of taxes is my beef. I'm also paying the 150,000+ salaries of cabinet ministers who work a total of >2 months in a year. I'm paying for the millions of dollars spent on advertising; and I'm paying for millions of dollars that are mismanaged or whathaveyou, instead of doing things that the government promised to do.

Be glad you don't live in Europe. Here in the UK, sales tax (known as VAT - "Value-Added Tax" - though it's technically a duty) is 17½%, and when you buy car fuel, you pay VAT on the fuel duty as well as on the fuel itself, making the government's share much greater than the oil companies' revenue.

Now we need someone from Scandinavia to say what high taxes really mean (cue the Four Yorkshiremen...)

The VAT is 21% here in Belgium, and I believe that's the highest in the world. Goooo Belgium! NOT!

The VAT is 21% here in Belgium, and I believe that's the highest in the world. Goooo Belgium! NOT!

Is it good value for money, though? Is the quality of your healthcare, education, public transport, etc., also the highest in the world?

Peter

Not exactly. I believe the scandinavian countries still have us beat when it comes to that.

My solution: Don't claim it on your 1040. That's what I did when I live in North Carolina.

You're all invited to New Hampshire, USA.

Sales Tax: 0%

Use Tax: 0%

Vehicle tax: based on blue book value of your vehicle.

Property Tax: This is where you pay. This covers state & local school taxes as well as the municipality taxes (roads, garbage etcetera). My tax payment on an assed value of $145,000 is about $300/month. This varies by town.

Meals & Rooms tax: 8%. Gets the tourist $.

Business & Enterprise tax: based on gross income, I'm foggy on the details, but a good deal of state revenue is generated here.

Liquor & cigarettes: Hard liquor only available at state stores, good hours & prices. Beer & wine available at most all grocery & convenience stores. Cigarettes taxed per pack - reasonable.

We pay our legislators $100/year and balanced budgets are a constitutional requirement.

-Zeke

is there not a reason that you're being taxed?

Of course there is. I have no problem with the concept of taxing. I have problems with specific methods. In this case, it'd seem to be unconstitutional. But, in general, I'd much rather the government be up-front about the amount of money they need and collect tax on it pure and simple instead of trying to hide it in other things, like traffic tickets and "use tax".

Don't claim it on your 1040. That's what I did when I live in North Carolina.

In fact, the tariff for the last two years hasn't ended up affecting me more than a couple of dollars. It's the principle, not the outcome, that I'm complaining about.

Consumers don't pay sales taxes; businesses do.

that one critical piece of obvious information didn't cross my mind.

However, and this just occurred to me, there must be some specific legislation that gives businesses the right to pass along that tax because if they just charged the equivalent of the item's cost and the tax, they'd end up owing more tax. As a concrete example, say you purchased something for $10 and there's 10% sales tax. The way we normally do it, that would mean that you'd end up paying $11 and one of those dollars would go to the government. But if a business charged $11 and didn't claim sales tax in there, then he'd be responsible for remitting 10% of $11, which would be $1.10. Hmmm. Doesn't really change my point either way; it just occurred to me.

Same here (Croatia), except that VAT is 22%. Top bracket income tax is 45% with not that much deductibles (mostly some health care and education expenses, interest on house mortgage and such). Fuel is about 1EUR per liter, most of the price being various taxes, excises, levies... Good chunk of that goes for road construction and maintenance subsidies.

I agree with Ezekiel. New Hampshire is great with very minimal taxes except property but I would rather pay Property than a million other.

But if a business charged $11 and didn't claim sales tax in there, then he'd be responsible for remitting 10% of $11, which would be $1.10.

I think that's probably why tax is carefully separated out on the receipt. So there's no base-calculation confusion like that.

I believe the scandinavian countries still have us beat

Yup, joyous 25% VAT here in Sweden (for most goods - some are lower though). I think Norway and Finland are in this region as well... Companies deduct VAT they've paid from the VAT generated by sales.

And VAT is of course calculated after adding things like customs, shipping etc.
IIRC about 75-80% of our gas price is various taxes... Gas is currently 11.56 SEK/liter standard unleaded (which is 95 octane [RON] - roughly 91 octane CLC/PON)
11.56 SEK is roughly US$1.53 which makes the [US] gallon US$5.80...

/Michael

You missed Bitt's point.

Say you went into a store and bought a $10 CD (yeah, right...) and then the clerk asks you for $11. You hand him a $10 bill and state that he is responsible for sales tax, not you. We know that in the real world that the clerk is going to tell you to either pay up or get on your bike and piss off, but let's pretend for a minute that he didn't. How is he going to convince you to pay? What gives him the right too?
If the cost is $10 and you offer $10, then surely he is (morally) obligated to accept that offer. He gets to keep $9 after paying the 10% tax.
Now if the cost is $11, you'd have to offer $11. He'd get to keep $9.90 after paying the 10% tax.

Now if the cost is $11, you'd have to offer $11. He'd get to keep $9.90 after paying the 10% tax.

But that's only if you base the calculation on the wrong original number. If I pay 11.00, the base price for the calculation is 10.00, not 11. Like I said, that's why they make the base price and the sales tax so clearly separated on the receipt. So you don't make the wrong calculation.

Yep,

here in Sweden all prices are advertised / labelled including VAT, 25%, unless you strictly do B2B, but the amount the VAT is of the final price is 20%.

For instance: 100 SEK + VAT makes 125 SEK. But the VAT is 25 of 125 - ie 20% of the final sales price.

/Michael

I think that's probably why tax is carefully separated out on the receipt.

But this isn't always the case, is it? Like when you buy popcorn at the theater or a CD at a concert you don't even see the tax amount. How does that work? I thought they just calculated the internal price and listed the price + tax.

Well, in that case, you just have to trust that they're using the right calculation I suppose. My point is that if you spend 11.00 for a product with a (hypothetical) 10 percent US state sales tax, the store is not paying 10 percent of 11.00, that's the wrong way to calculate it. They have to calculate it correctly so that baseprice+tax=11.00.

I like that way import taxes are calculated in the UK. You pay the import duty on the goods value then you pay VAT on the duty and goods value.

eg. I'm importing a 2002 Chevy Impala at the moment:
Value: $7,000.00 (it's done a lot of miles!)
Duty: $700.00 (10% of above)
VAT: $1347.50 (17.5% of above two)
Total payable: $2,047.5 = £1,118.85

Actually, forgot that you also have to add the shipping ($820) into the "value" too. Then it needs an SVA inspection (severe inspection of the vehicle's construction - £160) plus registration (£25) if it passes (hope if it will - it's probably never been imported into the UK yet!)

Gareth

OMG. The US should pay *you* for taking a Chevy Impala!

I suppose tastes vary...

:-)

Jim

I filled up the other day at the equivalent of $2.20 a gallon

I'm headed back up to Toronto/Ottawa for a couple weeks next month. It's gonna be nice to have cheap gas again!

You're all invited to New Hampshire, USA. [snip of stats]

And, most importantly, the state motto is "Live Free Or Die"

Sometimes interpreted as "Live, Freeze & Die."

-Zeke

Oh yeah: no pesky helmit or seatbelt laws to keep you from killing yourself, and a cop needs a warrant to search your car if you don't give permission.

As far as I know, every Provincial Sales Tax (Canada) is a tax to the consumer, NOT the business. And the GST, the federal tax, applies at every stage of commerce, from manufacturer all the way through to the consumer. However, it is a tax on the buyer side, not the seller side and is always applied at the selling price, with the difference being remitted by the current seller to the government). This is directly against the first point Bitt made in the original post.

I would be surprised if it isn't the same in the US.

In fact, merchants *are* licenced tax collectors up here for both Provincial and Federal "Sales" taxes. The tax must be collected regardless of how it is rolled into the final bill. Generally everything in Ontario is priced Tax-out. This means you get the 15% added at the end of your bill. There are a couple of provinces experimenting with Tax-In pricing (which is common in Europe - In Portugal for instance, when I see a sticker price, that's exactly how much I'm going to pay - at least it was when I was last there in 1998).

Bruno

I'm not going to comment on other states (and those of you not in the US, sales taxes are levied only by state and local governments; there is no federal sales tax), but in North Carolina (NC G.S. 105-164.4):

A privilege tax is imposed on a retailer at the following percentage rates of the retailer's net taxable sales or gross receipts, as appropriate. The general rate of tax is four and one-half percent (4 1/2%).

That's only the state tax. I assume that the local tax (which is collected at the same time and, in fact, remitted to the same state government agency where it's redistributed to local agencies) is similarly worded, but I could be wrong.

Once thing I never understood about VAT- is it really only the consumers in these countries who pay taxes? Does Sweden and other European countries have some kind of way to tax businesses are is the consumer really getting screwed with all the taxes?

In the UK, everybody pays VAT, including businesses.

However, business are allowed to claim the VAT back on any purchases that they make.

This is a simplistic explanation, though: If a small business wishes to claim back VAT, then they have to charge VAT on their services/products. If they don't charge VAT on their services/products, they can't claim VAT back on their purchases.

Above a certain size, a business has no choice: they must charge VAT.

For a more in depth (and probably more accurate explanation), here's what the Inland Revenue have to say about the subject.

But isn't this still totally unfair to the consumer because rich businessman end up paying not much more VAT than lower income consumers? I mean sales taxes come mostly from the lower and middle class, it suprises mean that such left-leaning European countries would let rich people get away with only paying VAT taxes on what they buy.

Yep - and when you're paying 40% of your income as tax anyway it all starts getting a bit bl**dy expensive. Next election I'm voting the Tories back. I thought Labour would help (as my wife is a nurse, and they promised NHS improvements) but they are just a bunch of arse as kinda expected.

(sorry - feeling a bit snippy after a very strong Starbucks!!)

But isn't this still totally unfair to the consumer because rich businessman end up paying not much more VAT than lower income consumers? I mean sales taxes come mostly from the lower and middle class, it suprises mean that such left-leaning European countries would let rich people get away with only paying VAT taxes on what they buy.

If that were the only tax, yes it would sound a bit unfair. But the rich businessman will be paying much more income tax than the lower-income people, and his business will be paying corporation tax on its profits.

VAT is theoretically a tax on businesses: if a business buys raw materials for £X and makes from them products which it sells for £Y, it pays VAT on the difference, Y-X. That's why it's called Value Added Tax: it's a tax on value-add, on margin. Of course the perception is that it's a tax on consumers, because consumers see businesses buying supplies (computers, say) at the VAT-exclusive price, whereas technically they're paying the VAT-inclusive price but claiming back the VAT.

Peter

In addition to which, in the real world, if you tax businesses at every step along the way, that costs just gets passed on to the consumers. In the end, the consumer this way pays less money as a result of tax, even if it appears that they're the only ones getting taxed. (When, in fact, it's just the cost of the finished item getting taxed, not the consumer.) I'm not usually one to promote trickle-down economics, but I think that in this specific case, it's true.

ohh European still pay income tax that explains it, I was under the impression that VAT was basically the only tax people paid over there. Well.. ok.. there are some benefits to living in the U.S. then..

But isn't this still totally unfair to the consumer because rich businessman end up paying not much more VAT than lower income consumers?

Also, VAT was originally only supposed to be charged on luxuries, not essentials, so those with luxurious lifestyles paid proportionately more. This attitude has been slightly eroded over the years, though, and there have always been the inevitable dubious calls on that rather fractal boundary.

Peter