Additional Math Pages & Resources

Thursday, March 11, 2010

Which is higher and why?

Most people are very interested in taxation. Or perhaps I should say we are interested in reducing or avoiding taxes when they are applied to us!

Many countries use a taxation structure called VAT (value-added tax). VAT is paid by companies who create products, all the way up through the production chain. It is INCLUDED in the sales price of most products, by law.

VAT was first adopted in France in 1954. VAT was created to help avoid a taxation problem: when obvious taxes exceed 10% of the cost of an item, citizens increasingly seek creative ways to AVOID, REDUCE or EVADE taxes -- by smuggling, lying, "forgetting" and so on.

NOTE: Tax evasion is illegal, while other activities related to avoiding and reducing taxes are usually legal.

In the USA we have favored local SALES TAXES. These taxes on goods and services are levied by local governments to pay for local needs. They are added ON TOP OF the listed sales price, so they are easily seen (and resented). Those taxes are approaching 10% in many places.

Do you want to AVOID or REDUCE your sales taxes? Join the crowd. There are thousands of books, websites and advisors promising to help you save sales taxes, income taxes, capital gains taxes, corporate taxes, etc.
  1. Go to Delaware, Montana, New Hampshire, Oregon or (most of) Alaska - they don't charge sales tax. But your own state might want to charge you if they know what you are buying is going to be brought back home. This loophole-plugging scheme is called USE TAX.
  2. Go to Hawaii. They don't charge sales tax either. Instead they charge EXCISE TAX on almost everything. But a tax is a tax, and you won't save anything there because the excise taxes are high.
  3. Buy on the Internet. Most Internet retailers do NOT collect sales tax if the buyer is outside the state where the Internet retailer is located. If they do have a facility in your state, then they should charge you your local sales tax. Look carefully before you buy. Shipping may be more than the cost of your local tax, and your state may charge you USE TAX if they catch you.
  4. Buy from a retailer who says "We'll pay the sales tax!" This is usually a furniture store or some other business that discounts the price of their products to offset the tax.
  5. Buy overseas. You can reclaim the VAT that you pay in-country, if you can prove that you will be using the item back in your homeland. Remember you may have to declare the purchase to US Customs, may have to pay DUTY on that item, and/or may have to pay USE TAX to your home state.
  6. Buy things that aren't taxed. In many places you can buy food, clothing and books with no or reduced sales taxes.
  7. Don't buy anything.
Here's a map that shows average state sales taxes in the United States. There are approximately 7000 different sales tax rate-setting districts in the USA! A few database companies collect and re-distribute these figures to accounting systems and cash registers.

Canada uses a complex system of taxation depending on the province. Taxes include GST (national VAT), HST (harmonized system) and/or PST (Provincial tax). I don't want to try to explain it today.

Here's a chart that shows average VAT taxes around the world. It appears that Iceland has the highest VAT in the world, at 25.5%. But several other countries are right behind, with VAT at 25%.

Who's taxed the least? That's very hard to say. It depends on what you eat, what you drink, how much you drive, and where you go, whether you are a tourist or a local, etc.

Who's taxed the most? That's also hard to say. It depends on what you buy, how much you make, whether your income is earned from a job, derived from savings, or investments, an inheritance, etc.

Have you ever wanted to INCREASE your taxes? I can't help you. There are no books on that ...

In Excel Math we teach kids to calculate sales tax. We don't discuss reducing, avoiding and evading.