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I think a better explanation is that taxes on revenue favour vertical integration. Imagine a product that requires building widget A, then turning that into wi

I think a better explanation is that taxes on revenue favour vertical integration. Imagine a product that requires building widget A, then turning that into widget B, then turning that into widget C. If we have the following companies: C: revenue $6m, purchase costs $4m, other costs $1m B: revenue $4m, purchase costs $2m, other costs $1m A: revenue $2m, purchase costs $0, other costs $1m then taxes are paid on $12m. If we instead have: Alphabet: revenue $6m, purchase costs $0, other costs $3m then taxes are paid on $6m, even though the same amount of stuff is being made with the same efficiency, same profits, etc. Whether this is relevant for tech giants is another matter. Software tends to be quite vertically integrated (financially speaking, at least).

vidarh 9y ago
This is typically the argument for VAT over other sales taxes. In the EU, A would charge $2m + VAT. Let's say 10% for ease. So B would have purchase costs of $2.2m, and would charge $4.4m. $400k of that is VAT, but they get a $200k VAT refund for the VAT paid on the purchase from A. C would charge $6.6m, of which $600k is VAT, and claim $400k VAT back. End result is A, B, and C would all pay $200k VAT each. In your second example, the VAT inclusive price would still be $6.6k, and the VAT due would still be $600k. In practice many non-VAT sales taxes also counters this problem by trying to define what makes a "final" sale or a sale to consumers as opposed to other companies, and taxing only that.