I’m sure we’ve all heard this advertising pitch. Of course, it simply means that they’ve already figured the sales tax into the price, and are still giving the government their slice.
My question is, since this is obviously legal, why don’t they just do it all the time? It would be much more convenient to just run around the store mentally adding up prices instead of mentally adding them up and tacking on a percentage. Why hasn’t some retailer hit on this as a “convenience” gimmick they could push - “come to Honest Fred’s, where what you see on the price tag is just what you pay.”?
Are they afraid they’ll have to price things a few cents more, and have their prices look bad against competitors that tack on the tax at the till? I have a feeling this is the case.
I don’t know if this is related or not. Here in Texas we have an annual sales tax holiday that runs about three days. As one would expect, the retailers advertise this fact a lot as it approaches.
I don’t know where Yabob lives, but I can tell you that in SOME states- my home state of Texas, for one- there are a few weekends each year when retailers are exempt from sales tax.
In Texas, this happens in August, during “back to school” season. This year, from Aug. 3-5, there is no sales tax on most shoes, clothing and school supplies. Many clothing stores and discount stores here are ALREADY advertising big sales for that weekend on children’s clothing.
So, Yabob MAY be right- MAYBE “tax free” days are just a phony gimmick in his comminity. But depending where he lives, there MIGHT be occasional days when the state gives consumers and retailers a sales tax break.
Some places do exactly that. One summer while I was in college I worked at an amusement park at a concession stand, and we were constantly asked by park guests whether there was tax on the listed prices. There was not, because the sales tax was already backed into the price.
I live in CA, and have seen this gimmick in other states as well. More than once, I’ve been curious enough to dig through the ad copy and find some very fine print that says something to the effect of “sales tax included in the price will be paid to the state”.
One reason is that they can afford to do it as a one time sales gimmick, but doing it on a year-round basis would introduce a lot of hassles–especially for products sold in multiple states.
Consider widgets and doodads sold at Cecil-Mart. Widgets are priced at $10.99 for the small size and 15.99 for the large size. Doodads a retailed at .99 and $1.79. Now if you pick up any of those products, what do you notice on the upper corner? The price. Cecil-Mart can buy all the widgets and doodads it wants from New Jersey and Taiwan and have them shipped directly to the Cecil-Mart warehouse in the mythical North Dakota to be distributed to Cecil-Marts all across the country. No matter what store an individual package arrives at, the MSRP is already printed on the package. (Having worked in retail in the “We’ll label it ourselves” days, I can tell you that an enormous cost of doing business used to be the labor invested in sticking prices on objects.)
What does that have to do with the tax? Well, in my neighborhood, the sales tax is 5.5%. Just a few miles west of me, in a different county, the tax is 7.5%. Up in Michigan, the tax was 4% for around 38 years, but has recently gone to (I believe) 6%. Other states have taxes as low as 0% and as high as 11%. A truck loaded up in the mythical North Dakota can be sent out with its pre-priced merchandise heading for my local Cecil-Mart, be redirected en route to either Ann Arbor, MI, or Clevelend, OH, or Albany, NY and no one has to touch the price tags when they arrive at the alternative destination.
Are there alternatives to this process? Sure. Bar coding and shelf-marking could make it totally unnecessary to put individual prices on any item. (A lot of canned food is already not ticketed.) On the other hand, when bar-coding was first introduced, there were numerous well publicized incidents of stores showing one price on the shelf and the scan at the register demanding something else. (These were far more often the result of some harried assistant manager miskeying or failing to enter a price change than a deliberate effort on the part of the stores to cheat the customers.) The result, however, was a demand by many groups that prices be displayed on packaging. While there is a movement away from that (as with canned vegetables), no store is going to risk going to totally unlabeled mechandise in the near future.
If the stores are going to maintain the individual prices, then that is handled most economically by having the manufacturer label the product during packaging. If the prices are going to arrive in central distribution warehouses pre-priced, the amazing array of differing sales tax rates is going to prevent the price from being incorporated into the price tag.
Doing it for a day or a weekend is an effort a store will invest in order to bring in more customers. Selling everything at a tax-imposed discount all the time is too expensive to attempt.
So suppose there’s a 9% sales tax, and the store sells the product for exactly $1.00. Does the store pay 9 cents in sales tax (9% of $1.00), or 8 cents (9% of 1.00-.08 = .08)?
(Assuming you’re talking about the “We’ll pay the tax” sales gimmicks), If the marked price is 1.00 and the tax rate is 9%, the store will give the taxing authority .09 while it will receive $1.00 from the customer. The sales tax is based on the priced value of the merchandise. Of course, while it is a nice gimmick, aside from the accounting hassles, the store is actually not giving away all that much money. Sales are frequently based on discounts of 10% or more, so, unless your local tax exceeds 10%, the store is not really suffering too badly by absorbing the sales tax.
When the store has a 10% off sale, the item is discounted to .90 and the tax charged would be .08 (.90 X .09 = .0810 and the .0010 gets truncated) so the customer would pay .98 and the store would give .08 to the taxing authority. Since the tax is based on the priced value, reducing the price (through a sale) reduces the assessed tax.
I sell merchandise for a local music series, and we always divide the total at the end by 1.06 (6% tax) to find the total actual sales. The rest is sales tax. (Of course, it’s possible that we’re not supposed to do it that way.)
(Aside: our venue keeps 20% of the total, but then there is always an argument between us and the artist as to who has to pay the sales tax on the merchandise. I stood in a backstage rest room and argued with Leon Redbone for 5 minutes over this point. Ralph Stanley and his entourage got so pissed off over the high house cut (which I’m told is really not that high) that they left without paying us. (“Dr.” Stanley himself told me before the show, “That 20% business is a bunch of bullshit.”))
DoctorJ’s method is correct, if an item costs $.90 cents with 9% sales tax figured in, and x + (tax rate)*x = p where x is the original price and p is the final price, then p - p/(1 + tax rate) = tax paid, then the tax paid is 7 cents.
Maybe it’s legal and maybe it isn’t. Depends on the state. Pretending that the customer is paying less because he isn’t paying sales tax definitely violates the Texas Deceptive Trade Practices Act. It would violate it even if the customer were actually paying less, but the retailer lied about the reason. It’s common in movie theatres to add the tax to the price, but that is stated on the price list.
DoctorJ - that’s what I would assume you would do if you were including tax in the price. What the customer gave you represents the sales + the sales tax:
What tomndebb says indicates that they do it in a way which would seem to be shortchanging the store a bit, but he seems to know about retail, and I’ll believe him. It hinges on whther the price tag is assumed to indicate price + included tax, or whether it just represents the price, and the store is footing the tax bill. I wouldn’t be surprised if laws governing this differ from state to state. WAG - they may have to display “tax included in the price” on the item to do it they way we are thinking, like they do on gas pumps.