2 for 5? 2 FOR 5!

[bunrotha]

Yeah, it's called VAT (Value Added Tax) and is applied to all relevant items sale price before they print out the price labels

The rules are pretty easy in the UK- for selling to consumers, the price you advertise includes tax. Even cars, they have to advertise the on-the-road price for sale to the public including the mandatory extras like registration.
When you get your receipt/invoice, it will show the tax total.
Only essentials like food are exempt (what else is essential? That's Fratching territory..)

If you're wholesale/trade, because most of your customers can claim back the VAT on their purchases, you can advertise the pre-tax price, but again the invoice must show the tax separately. Most sellers in the borderlands between consumer and trade, like Costco, they tend to show both inc VAT and ex VAT prices together.

As a customer, simple. You pay the price on the ticket.

As a cashier, there's almost no chance of getting asked to take off tax, as that would require maths on an SC's part, and the ex. VAT price never appears to give them any stupid ideas.

As a business, having to charge VAT, account for it, pay it, claim it back, submit a tax return quarterly, have a fight with the tax office every other time, and finally pay the VAT bill on the difference between charged and paid? Less simple.

At risk of further derailment, I'm interested in why it wouldn't work for stores in the US though. Everybody's based somewhere, stores in a state have to charge the same tax to everyone that walks in, don't they? Why not advertise the local price including tax if you're a physical store? I'm sure that must be feasible, down to tailoring the ads on affiliate TV stations.. am I being particularly dim today?

[mhkohne]

At risk of further derailment, I'm interested in why it wouldn't work for stores in the US though. Everybody's based somewhere, stores in a state have to charge the same tax to everyone that walks in, don't they? Why not advertise the local price including tax if you're a physical store? I'm sure that must be feasible, down to tailoring the ads on affiliate TV stations.. am I being particularly dim today?

Many states don't allow selling on a tax included basis. I suspect that was originally intended to makenitn harder for the retailers to avoid paying the taxes to the state somehow, but I'm not sure.

[EricKei]

it doesn't work in the US because each state has its own tax laws.

I'm interested in why it wouldn't work for stores in the US though.

It's even worse than you think -- Each state (with a couple of exceptions) charges tax, and each county can also charge its own on top of that; I believe cities within the counties ALSO have that option. Beyond that, you have the fact that, in some areas, the tax rates vary on certain goods. E.g., one city may not charge tax at all on produce, while another charges a reduced rate, and a third charges a single tax rate on everything...all within the same county. As a result, the variations in the actual charged tax rates are simply way too complex to account for. I'm not sure what the low end is, but, in the City of New Orleans, the total tax rate was 9.75% on non-luxury purchased goods (the highest in the country, AFAIK); things such as hotel stays have their own special taxes added on top of that.

[morgana]

At risk of further derailment, I'm interested in why it wouldn't work for stores in the US though. Everybody's based somewhere, stores in a state have to charge the same tax to everyone that walks in, don't they? Why not advertise the local price including tax if you're a physical store? I'm sure that must be feasible, down to tailoring the ads on affiliate TV stations.. am I being particularly dim today?

Others have explained it, but let me give you a concrete example:

Before I moved to my current place, about once a month I would travel from Topeka Kansas to Omaha Nebraska to visit my mother in the nursing home. Halfway through the trip I would usually stop in Auburn Nebraska to use the restroom and get a fresh drink.

Notice that I have two different states here, and three different cities?

If I stopped at the very same gas station chain in all three cities, a 20 ounce Diet Dr. Pepper cost me $1.29 in Topeka, $1.49 in Auburn, and $1.39 in Omaha. Difference was the different tax rates in each area.

[greek_jester]

That's amazing! I mean how does that work? How does the government raise revenue?

*Ahem*

VAT, or Value Added Tax, is a charge added to all "luxury" items in the UK. Staples such as basic food (e.g. fruit, veg, potatoes, rice, meat, butter, sugar) are taxed at 0%, luxuries (e.g. chocolate, alcohol, cars, electrical goods) are taxed at the standard rate, which is currently 20%.* There are also reduced rates for residential gas and electric supplies, which is currently charged at 5%.

By law, when selling to the general public all prices must be shown inclusive of VAT, or state clearly that the price is net of VAT at whatever rate is appropriate. This way no-one gets any nasty surprises.

The way it works is businesses pay HM Revenue & Customs (a.k.a. the Inland Revenue) VAT on all the sales they've made, less VAT claimed on any valid business purchases they've made (which means, for instance, that a sole trader can't claim back VAT on installing a swimming pool at his house).

If you are a private individual, you have no way to claim the VAT back, which is where HMRC get their money; the business that sold it has paid VAT to HMRC, but the individual who bought it is not claiming VAT back on the purchase. Also, if you are a business making sales less than the annual threshold for VAT you don't have to pay VAT, so once again that is where HMRC get their share for the same reasons.

Here's the official HMRC explanation, if you're interested.

https://www.gov.uk/vat-businesses/how-vat-works


*Interesting fact; biscuits (cookies in the US) and cakes are counted as a staple item, while chocolate covered biscuits are a luxury. Marks & Spencer took HMRC to court over toasted teacakes; in the 70's they were classed as a luxury item and had to have VAT charged on them. M&S took on HMRC to get the teacakes reclassified as cakes, and won.

http://news.bbc.co.uk/1/hi/world/europe/7870265.stm

/accountancy lecture.

[notalwaysright]

Just to add a bit, sales tax and VAT aren't the same thing, either, so it's not really an apples to apples comparison. This is a more in depth explanation. Oh, and another group which is taxes very differently per state is liquor. Really!

If there was a way to do it, especially so that all the numbers come out even, (ex: $5, $10) that would be great. I liked that when I visited Japan. But I don't see it happening any time soon.

Edit: Hehe, greek jester beat me to it!

[BPFH]

It's even worse than you think -- Each state (with a couple of exceptions) charges tax, and each county can also charge its own on top of that; I believe cities within the counties ALSO have that option.

Not necessarily. As usual, it depends on the state. Michigan's is a flat 6% across the entire state. Cities, counties, and other municipalities are not allowed to add to it. Of course, incorporated cities there can levy an income tax, so nothing's perfect.

[BeeMused]

/accountancy lecture.

And addendum for Germany, the rules are the same all over Europe, I guess.

As a wholesaler and manufacturer VAT (Mehrwertsteuer/Umsatzsteuer) is daily buisiness for us. We pay VAT for everything we buy for our business, we add VAT for everything we sell. Each month we have to submit the numbers to the taxoffice (Finanzamt), if we paid more VAT compared to the VAT we charged our customers, we get money back (eventually). If it's the other way round we have to pay, at once!

Our current rate is 19%.

[Gilhelmi]

In why VAT probably would not work in the US, I notice that most people (including Americans) forget just how HUGE the United States is. It might be the same size as Australia, but has 14 times the population (and more habitable land ).

The British Isles is about the same size as an average State.
The EU is only slightly smaller than the US. (although I might be wrong, I am not sure who all is in the EU now)

I am not sure how the EU works with taxes though. Do you have a separate tax for the "local", "national", and "united national" or do the member nations pay a tax directly to the EU to pay for joint operations?

[sstabeler]

each member state pays a contribution to the EU budget, but last year it was revealed that the EU can arbitrarily demand an alteration int he amount- discovered when the EU demanded the UK pay multiple billion pounds almost completely out of the blue ( to the public, anyway)