Additional Math Pages & Resources

Friday, January 27, 2012

Taxes and Fees Revealed, Part II

Yesterday I introduced the subject of taxes and fees, specifically referring to hidden charges on airline tickets. Today we will expand on this subject, using only elementary math taught in our curriculum

About 15 years ago I started a consulting business. I went down to the county government building, created a fictitious name for my business, and got a business license. Because I only had one employee (myself) I only paid $39 for my business license.

Each year I had to pay the $39 but in 2004 the city added a $25 collection "fee" in order to compensate themselves for taking my $39. This applied to landlord licenses, business licenses, etc. They charged us for the work of taking our money, nothing else.

$39 x 1.64 = $64 or a 64% increase over the existing charge!

Outraged small business persons protested and eventually sued the city. The first judgement was in favor of the city, but an appeals court over-ruled and overturned the fee. Click here to read the entire judgement, or skip that and read my summary in plain English:

We must decide whether a 2004 levy imposed by the City of San Diego, without a vote of the electorate, for the purpose of recovering the cost of collecting and administering a general "Business Tax," is a fee or is a special tax that should have been approved by a vote of the electorate. We specifically hold the levy is not a fee, but is a general tax that is subject to voter approval, and is void because it was levied by the city council without approval by a majority vote of the qualified voters as required by the California Constitution. Accordingly, we reverse the summary judgment granted in favor of the City.

We learned that the difference between a tax and a fee is based upon the purpose of the charge:
  • A charge that covers the cost of providing a service to the payer or regulates the payer's conduct is a fee
  • A charge that raises revenue for general spending without conferring any exclusive benefit to an individual payer is a tax.
Notice the careful distinctions made on this summary of airline fees, taxes, charges and surcharges:

In addition to what you see here, you may also pay:
  • Federal 7.5 percent excise tax on the base ticket price
  • Segment tax of $3.70 per person per segment (a single takeoff and single landing)
  • International facility tax of $8.20 per person for flights that begin or end in Alaska or Hawaii
  • A 6.25 percent tax on the amount paid for transporting property (freight, pets) by air

Compared to the airlines, we have an easy time in the book publishing business - but we still have to keep track of the 6000+ municipal and state tax rates in the USA!