13 ms·

Sales tax creates more unnecessary pain than value added tax

• deleted 6y ago
  [deleted]
• polote 6y ago
  In France when you are a company you don't pay VAT on stuff you buy from other companies, so the main point of the article doesn't work. Because I guess if we had sales tax, companies wouldn't pay it either Edit: My point is that it will not make a company economically more efficient than several companies
  • rahimnathwani 6y ago
    > Because I guess if we had sales tax > companies wouldn't pay it either Then it would more accurately be called a VAT, than a sales tax.
    • polote 6y ago
      so only the companies which sell to citizens add value?
  • Hamuko 6y ago
    Saying that companies don't pay VAT is not entirely accurate. Technically companies pay VAT but get it rebated when they need to send the government the VAT that they have collected.
  • locallost 6y ago
    it applies, that's the whole point of the "added" part. you pay the government their full cut, but you get all the VAT you paid for back. so only the difference is taxed to you, as is to everyone else in the chain.
    • polote 6y ago
      yeah you are right, I'm wrong
  • Phenomenit 6y ago
    VAT is a tax on the final consumer collected with the aid of the companies in the supply chain.
  • tobias3 6y ago
    If it works the same as in Germany you only pay no VAT if you buy from a company in another EU country as a company. Therefore the EU has both a sales tax and a VAT depending on if you look at individual countries or the EU as a whole.
    • TazeTSchnitzel 6y ago
      No, you must pay VAT on intra-EU B2B transactions too. The accounting is more complicated because the buyer pays rather than the seller, but it is still there.
      • joefourier 6y ago
        You don't pay VAT on intra-EU B2B transactions; the buyer adds the VAT amount at their country's rate to both the amount to pay and the amount to claim back, cancelling it out.
        • imhoguy 6y ago
          This, reverse charge.
        • TazeTSchnitzel 6y ago
          The reverse charge is still VAT being paid, just differently.
          • joefourier 6y ago
            How so if the net liability change is nil? No extra money comes out of your account, it's just a paper charge that cancels itself. If I have misinterpreted it, I would very much like to know so I can inform my accountant. VAT is enough of a hairy mess as it is.
      • tobias3 6y ago
        Yeah, the accounting is there, but not the actual transfer. I.e. you're not transferring the actual money to France, which the French finance ministry would then have to send back to the German one once it got it from the French company (in order for the German one to give it back to the company buying the product). And the accounting is there because of tax fraud, I guess. And I also guess that the US has a similar accounting system where they have to report the amount purchased per tax bracket and the IDs of the companies they bought from.
  • gamblor956 6y ago
    French businesses still pay VAT on stuff they buy from other companies. Generally, most VAT systems work this way: Business collects VAT from customers for services or goods sold(output VAT), and must pay it to the government. But businesses may offset that liability with the VAT they paid acquiring goods or services that were used in their own revenue-generating activities (input VAT). So, for example, ACME sells TNT for $10 and VAT is 10% or $1 (output VAT), so price to customer is $11 and ACME's VAT liability is $1. Say ACME paid $0.25 VAT to its suppliers for the chemicals in the TNT and the paper casing (input VAT). ACME's net tax liability is $0.75, and that is how much they would actually fork over to the government. Note that if ACME's customer is Bugs' Mining Shop, i.e., a business, they still charge VAT on the transaction. In a sales tax system, ACME would not have paid sales tax to its suppliers at all, and it would not have charged Bugs' Mining Shop a sales tax. Thus, sales tax is generally more economically efficient than a VAT from a business perspective.
• xwdv 6y ago
  Sales tax is better at driving capitalist competition than VAT, so it works far better for American society. The consumer wins.
  • gowld 6y ago
    Why?
  • salamander014 6y ago
    That seems nearsighted to me. Making it cheaper for vertically integrated businesses to make money kind of forces bigger businesses to buy smaller ones. This same idea also means that smaller businesses aren't on the same playing field as bigger businesses, because they can't afford to vertically integrate as much. They don't have as much cash to spend. This means that small businesses naturally have a harder time growing. And this becomes an oligopoly problem. The big businesses get bigger and the small businesses either get bought or get put of business. That doesn't sound like a healthy market to me. I would much prefer a market with many competitive small businesses that work with other small businesses to build products. Better products and choice of products are guaranteed this way.
• exabrial 6y ago
  > Tax creates unnecessary pain There, fixed it for you.
  • disposekinetics 6y ago
    It makes intuitive sense right? There exist mutually beneficial transactions that cannot happen because they are mutually beneficial at the original price point and not at the taxed price point.
    • Dylan16807 6y ago
      Well, a tax on profit or wealth doesn't do that.
  • oblio 6y ago
    What's the painless alternative?
    • saalweachter 6y ago
      Inflation -- the government prints money, devaluing all existing money. It's a tax with no paperwork involved.
      • hyperpape 6y ago
        Wouldn't this tend to cause overinvestment in durable goods? Instead of putting your money in a bank, you put it in something physical to resell later. Seems inefficient.
    • GloriousKoji 6y ago
      Government prints as much money as it needs to pay itself. Now inflation and interest rates might be different type of pain but at least it's not the same pain of filing taxes, figuring out laws or finding someone to do that for you.
      • 6y ago
• pionar 6y ago
  Sales tax is usually not applied to supply in the US. Most people who buy product to resell it are exempt from sales tax in most states.
• viztor 6y ago
  In a sense, sales tax benefits giant factories, and VAT promotes small businesses along the supply chain. It's possible for a solo trader to optimize one operation to compete with a giant factory, but not all operations.
  • deleted 6y ago
    [deleted]
• lotsofpulp 6y ago
  >Without this exception, we’d probably have a crazy economy where manufacterers sell directly to consumers. What is the problem with this?
  • Pfhreak 6y ago
    Most of us enjoy going to a thing called a "store" where there are usually a variety of options to choose from, where one can easily compare side by side from different manufacturers.
    • Pet_Ant 6y ago
      Really? Don’t most of us going into a store, find something, Google reviews, and competitors, and competitors’ reviews and then see if the convenience of being already here outweighs the effort of going somewhere else plus it’s marginal utility increase? Honestly, I’ve shifted a lot of my regular purchases into Amazon subscriptions.
      • squeaky-clean 6y ago
        Amazon is still a store though, unless you're exclusively buying Amazon brand products.
        • Pet_Ant 6y ago
          I suppose. I think it more as a delivery mechanism or ordering portal. A far number of my purchases are shipped by Amazon sold by someone else. I don't think of Amazon as doing the curation I think of when I think of a store. I guess maybe it's a bit of a middle ground.
          • Pfhreak 6y ago
            Not 'I suppose', it's literally a store. It has its own payment processing, inventory, storefront, brands, etc.
    • 6y ago
• rgbrenner 6y ago
  I'm going to take a wild guess and say the author isn't from the US. He includes sales tax on items purchased for resale.... which is an exception in every state that I know of. Even if you purchase an item at retail with sales tax, you can file to receive the money back from the state. Additionally sales tax has nothing to do with whether your supply chain is fully integrated, and hiring all of your suppliers as employees doesn't affect sales tax. What he also misses: is that if I sell something to another retailer for resale (meaning he says he's going to resell what I sold him), I don't charge him sales tax on the entire purchase. Not until it reaches the final consumer is sales tax charged. He says this isn't true, and links to a wikipedia article on a gross receipts tax. This is another confusion on his part. Some states do not have income taxes, and instead have gross receipt taxes. This is an alternative to business income taxes, not sales taxes. The confusion is understandable. No one has ever accused the US of having a simple tax system.
  • gowld 6y ago
    > What he also misses: is that if I sell something to another retailer for resale , I don't charge him sales tax on the entire purchase. This is covered in the article: "a retailer usually won’t pay sales tax on a manufactured good they intend to a consumer in the same form."
    • rgbrenner 6y ago
      It doesnt have to be in the same form. It just needs to be an input into the product that will eventually be sold to a consumer, where the sales tax will be charged. For a really clear example of this, many states have a sales tax exception for equipment that will manufacture goods for resale. So in that case, the equipment never even made it into the final product, except by touching the item that was sold. Equipment has a lifetime, and it's consumed by producing items for resale... so it's exempt. If I purchase raw material to turn into a final product, that raw material is sales tax exempt.
      • sumtechguy 6y ago
        The only bit that would be up for taxing would be any profit made from that sale. Buy for 2 dollars sell for 3. Only the 1 dollar profit is in play for taxes. Even then it can be exempt or removed by other items in the tax code. That profit is not part of the sales tax system. It is part of the income tax system.
• gowld 6y ago
  Sales tax also cripples the used/resale/refurbish product, making it more locally efficient to buy new instead of used, pushing used goods into the waste stream.
  • chaostheory 6y ago
    How?
  • buzzerbetrayed 6y ago
    Why is this? Because people compare the used price to the pre-tax new price?
  • mywittyname 6y ago
    How so? 1) second-hand goods purchased from a non-business are usually tax-free. With the exception of vehicles. You're asked to pay sales tax on these purchases when filing your income tax each year, but in practice, noone does this. 2) I buy used/refurbished tools and furniture pretty frequently. How exactly is the second-hand market being crippled here?
    • chrischen 6y ago
      Are you talking specifically about cash transactions? Because ebay collects sales tax now.
      • mywittyname 6y ago
        Most sellers on eBay are businesses. But you can buy stuff on FB Marketplace or CL without paying sales tax, even if you use a service like venmo for handling payments. In most states, you are technically supposed to report these transaction on your income tax return, but enforcement of that is not practical for the state.
      • vonmoltke 6y ago
        In general, sellers only need to collect sales tax if they meet the legal definition of "reseller". The test varies from state to state, but is generally a combination of gross annual revenue from sales and number of sales transactions per year. Generally, transactions between private parties are not subject to sales tax. eBay was hit by special "marketplace facilitator" clauses in remote tax laws that have popped up since South Dakota v. Wayfair. The tax is actually imposed on the marketplace, not the seller. It doesn't matter what the seller's status is relative to the above, because it is eBay that is being required to remit he tax. If the seller is independently obligated to remit tax to a given state as well, they count the eBay-collected tax against their own obligation.
• jcrawfordor 6y ago
  In my state, items purchased for resale, items purchased to be used as consumable supplies in the manufacture of other items, construction materials, and several other cases are exempt from sales tax via a device called a non-taxable transaction certificate (NTTC). Obtaining NTTCs from the tax department is a slight hassle but it's done via a web system once per vendor and probably hasn't taken me more than a few minutes of my life, as a small-scale reseller. I've also never had an issue with a seller not accepting an NTTC, and in fact some places I obtain goods (certain surplus sales) actually require an NTTC as a condition of participating, since they have opted not to even be capable of collecting sales tax. Having previously lived in a state with no sales tax whatsoever, I'm not really sure how common this scheme is across states, but given said national marketplaces that require an NTTC as a condition of entry I'm guessing exceptions where such an item doesn't exist are fairly rare (although other states do call them by other names, I have once or twice obtained a similar form from a neighboring state which required such a document for out-of-state purchasers). So I guess I'm not sure that this author really understands the reality of sales tax in the US - if sales tax really was imposed on every step of the supply chain it would be a huge issue, but it seems that the general principal is that sales tax should only be imposed on sale to the final user. Of course my state doesn't actually have a sales tax either but instead a gross receipts tax. While technically a tax on the business and not the transaction, the GRT is conventionally passed on to the customer just like a sales tax, so the two are fairly equivalent for typical transactions. Oddly some websites specifically mention New Mexico as a state in which the GRT is not charged to the customer, indicating that the author has never purchased anything in New Mexico...
• chaostheory 6y ago
  What's to prevent implementing sales tax to have the same benefits as VAT? I don't see how we need to lose the transparency of sales taxes to get the benefits of selective VAT. For example, in many places in the US, food bought from groceries are not taxable. Having a sales tax does not mean you can't be selective about it. This is the main thing that the author missed.
• gamblor956 6y ago
  Author clearly doesn't understand how sales taxes work. Sales tax is only charged on sales to the final customer. Resellers (aka, stores) are not charged sales tax. [EDIT: Note that a "reseller" is any individual or entity that has registered as a reseller with their state. This usually incurs an obligation to file a sales tax return at least annually.] In contrast, VAT is levied on every participant in the chain of transactions. (Note that businesses can offset their VAT liability with the VAT they paid for services/goods received.)
  • disiplus 6y ago
    (Note that businesses can offset their VAT liability with the VAT they paid for services/goods received.) this is misleading, it's like saying you can get a salary as a worker. you get the salary. there is no "you can" the same is true for VAT, the amount you owe is the difference between the tax you paid for the service/goods you bought and the tax you collected when you sold. at the end of the month or what ever other period you are required to pay taxes the sum is simplified this difference. with a VAT rate of 25% if you paid something 125, (100 base + 25 vat) and sold it after for 150 (120 base + 30 VAT) you owe the (30-25) = 5. In the accounting software the tax rate for every line item is entered when creating the entry. So at the end of the month its easy to make a report.
    • gamblor956 6y ago
      No, I specifically said "can" because you only get to offset input VAT if you satisfy the procedural requirements for doing so; it's not automatic. In contrast, output VAT is automatic and will be imputed by the taxing authority whether or not you file VAT returns.
      • disiplus 6y ago
        There are no procedural requirements that i know of, it's how the VAT system works. The only difference is are you in VAT system or not (there are rules when you have to go in). If you are not in the system you cannot offset the VAT but you are not required to collect it also, so whatever you charge you keep . Please give me the example where you are required to collect but cannot offset. There are per countries some special cases, for some type of items, where the full amount will not be recognized but those are exceptions.
• pydry 6y ago
  Land Value Tax is simpler and more progressive and more economically efficient than both.
  • pg_bot 6y ago
    Land Value Tax for the states, Value Added Tax for the feds.
• bluecalm 6y ago
  Sales tax and VAT are equivalent assuming everyone plays by the rules, this is economy 101. The difference is in the implementation and where places for abuse are. With VAT you charge it everywhere in the chain and then apply for refunds if the total you paid is higher than the total you collected. The argument is that this makes VAT more difficult to game but this doesn't sound very convincing seeing how the whole criminal industry was created around gaming governments for fraudulent VAT returns. This caused the governments to create more and more reporting requirements making life more difficult for honest businesses. VAT also causes liquidity problems if you rely on fast refunds. This makes it difficult for small businesses because liquidity is a bigger problem for them. What often ends up happening is that they just have higher prices to make up for delated VAT returns. Living in a VAT country I am not a fan of it. I think taxing consumption is a good idea in general but the burden of the current implementation is too high.
• quotz 6y ago
  Any taxes add unnecessary pain. Welcome to the libertarian club. Lets keep taxes to the minimum
  • amanaplanacanal 6y ago
    People sure seem to like the spending half of the equation though. So debt just goes up forever, I guess.
• ehutch79 6y ago
  I feel like we need a US based cpa to chime in here?
• pwinnski 6y ago
  A system that gives the government $1 for a painted coconut is better than a system that gives the government $3.52 for a painted coconut, certainly. Except for the government! In reality, sales taxes tend to be half as large or less and are usually not actually paid on raw good for resale by resellers, so the difference isn't quite as stark, but it is odd that no mention is made of the difference in government revenue, since the government is the entity actaully imposing the taxes!
• lazyjones 6y ago
  I cannot comment on the sales tax explanation, but the VAT one is completely wrong. Businesses don't pay VAT (unless they are not in the VAT system, e.g. when they are too small or their business is exempt for other reasons), when they charge other businesses VAT they have to pass it to the tax authorities and when they are charged by other businesses, they get it refunded by the tax authorities. The (consumer) customer will pay the VAT surcharge, unless he exports the product to a country with no VAT (or different VAT), in that case he gets a refund and will typically pay the VAT of his country of residence. Whatever the VAT advantages/differences over sales tax may be, the EU has lost many billions in VAT fraud schemes.
• dongo999 6y ago
  VAT and other models are pure socialist and communist models. Sales tax as imposed by fly over states is correct way. Europe is lost cause. They haven't invented anything in last 70 years neither they have single technology company making heads spin. Communist, from where this author seems to be, only care of adding more taxes. I would say these people have some components of their brain misaligned. I am researching that now which component.
  • weakfish 6y ago
    Do you really think taxes == communism? Communism is a currency-less state.
  • dboreham 6y ago
    ARM? ASML?
• telaandrews2 6y ago
  I lead product for one of the leading US sales tax solutions, and have also built products automating EU VAT solutions. I came into these roles with little subject matter expertise, but with enthusiasm for making it easier for small businesses to thrive. So, take these inputs with that perspective, please. VAT tax rate calculations are trivial, but filing returns is complex. Sales tax calculations are complex, and so is filing returns. Also, the reseller tax exemptions are not easy (in fact, most tax audit fines come from poor records around tax exemption, not from collecting the wrong amount of tax). As someone operating a SaaS business in the US, I wish we had a VAT system. It's also worth understanding that in many states, sales taxes are the primary way that local governments can directly generate revenues. To simplify the US tax system, we first need to solve how we equitably fund local governments.
  • nraynaud 6y ago
    I think the EU made a really good computer system with the VAT, it’s way easier than sales taxes accros state borders. For curious people: every business entity has a VAT number. VAT has to be paid to the customer’s country (for individuals), the computer system tells you the country rate when you establish the bill. When it’s time to pay, you tell your own government how much you collected for each country and give them the loot. And the countries settle their VAT bills at the state level. Your red tape doesn’t grow with the number of countries you did business with. And there is no sneaky “you opened a tax nexus here, because you looked at me funny, and now you need a local accountant to sort it out”.
  • taxcoder 6y ago
    > To simplify the US tax system, we first need to solve how we equitably fund local governments. I agree differences between states drive much of the complication, with local jurisdiction taxes, such as in Ohio, adding much more complication. My political views fall more to the right than many HN participants, so I am slow to support the Federal government mandating sales tax changes. Do you have an opinion on the Streamlined Sales Tax Governing Board? streamlinedsalestax.org
  • PeterisP 6y ago
    One way to simplify sales tax without destroying the funding of local governments is to have the relevant portion of sales tax flow to the local governments while removing their ability to set rates and rules on the sales tax - so they get equitable funding, but it's uniform across neighbouring municipalities, and a business can ignore the complexity of how the tax is allocated between various levels of government. This obviously has a political impact and would cause local resistance, though, so it has to be pushed on from above.
• sitharus 6y ago
  I thought VAT models were used because it forces honesty at all levels. If you want to claim back the VAT on your inputs you have to declare them, so the tax department can spot a difference between declared inputs and outputs. It’s still possible to fiddle the numbers but harder than pure sales tax.
• Meekro 6y ago
  Could anyone who's running a SaaS company in the US discuss what they use for sales tax compliance, ideally something that'll work with Stripe? The Supreme Court's Wayfair ruling has recently forced US companies to start collecting sales tax in states where they have no presence, and for some states it's crazy complicated to figure out exactly how much tax you're supposed to charge each particular customer. Before the Wayfair ruling, a Texas company could just say "IP Geolocation- customer in Texas? Y/N." Collect sales tax if Y. Remit taxes, keep records, and you're good on compliance. The rate would be based on your company's Texas address, so you'd charge the same sales tax rate to every Texas customer. If you were a California company, you'd charge no sales tax to anyone. But now you're collecting for a variety of states that you have no presence in, and some will be crazy complicated. For example, Louisiana says out-of-state sellers have to identify the exact address for every buyer and match it to a huge database of tax districts to figure out which rate to charge that customer. It's crazy! A non-US SaaS company selling into the US would have a huge competitive advantage from not having to figure out this mess. Anyway, I'd love to hear from you SaaS guys about your compliance strategies!
• pxeboot 6y ago
  > The US has sales tax Something like 25-30% of the US (by area) does not have any sales tax at all [1]. [1] https://www.thebalance.com/states-without-a-sales-tax-3193305 https://www.thebalance.com/states-without-a-sales-tax-319330...
  • gnicholas 6y ago
    Also, the rate used in the example is double the sales tax rate in even the highest jurisdictions. More to the point, the author doesn't understand that no sales tax is paid when it's being used as a business input for resale. But the thing that made my radar go up was that it was talking about a US sales tax rate of 20%, which is just plain nuts. Even in CA, the highest rates crest just above 10%.
  • adrr 6y ago
    Sales tax is by state. Supporting VAT by state for ecommerce would be a nightmare.
• orasis 6y ago
  We don’t have either where I live and life is good.
• neilwilson 6y ago
  Now compare this with not having a sales tax or VAT and just having a tax on employment instead - paid by the business, not the employee. Which follows once you realise that government taxes to release resources for its own use, which given government is largely service based means employees. Now you have a tax that is progressive, not regressive and deals with the vertical integration issue. Employees are what create the "value add". Tax is required to release employees for the public use, which means you want less employment in the private sector than there otherwise would be.
• dboreham 6y ago
  Blissfully unaware of all this because I live in one of the US states with no sales tax.
• cerradokids 6y ago
  Between taxing the consuming or the producing of goods, tax the consuming. When the consume happens is where profit is made. If I produce a bunch, but don't sell anything, I payed a lot of taxes for nothing. Not fair at all.
• gnicholas 6y ago
  This post doesn't mention the main reason (in tax policy circles) that sales tax is seen as preferable to a VAT, which is that consumers know how much money is going to the government. With a VAT, you don't know, and it's easy for the government to increase the VAT without purchasers realizing it. In fact, VATs are sometimes referred to as "money machines" — as in, you can just crank them up to generate more tax revenue. Sales tax, on the other hand, is more salient because product prices are typically shown pre-tax. That means that when you buy something, you know how much of your money is going to sales tax, and people would realize if all of a sudden their $10 purchases were costing $12 with tax instead of $11.
  • wodenokoto 6y ago
    No. There is nothing inherent about sales tax that makes written prices shown pre tax. In Japan pre VAT prices are regularly advertised to consumers. In Denmark receipts shows percent and nominal VAT of every purchase. There is nothing defining to sales tax that makes it impossible to have sales tax and requires retailers to advertise post tax prices.
  • liversage 6y ago
    I'm confused by your statement that consumers don't know how much they are taxed by VAT. I live in a country where the VAT is 25%. If I want to know the VAT of a price I just divide by 5 (the price is 125% of the untaxed price so I need to divide by 5 to determine how much 25% is). By law you always have to provide the price including VAT to consumers so people are aware of the actual cost. This VAT has not changed for a very long time but if it were to increase (perhaps for good reasons) there would be an outrage. This tax is not being increased without people noticing. On the other hand decreasing VAT is also not going to happen (even if it might be beneficial). A single point decrease would create a huge budget deficit that would be really hard to cover by other means.
• penguin_booze 6y ago
  Rather silly question - perhaps someone can help: I get a mechanic to repair my car; he charges me for labour, and VAT (20%) on top. The VAT he charges me, he pays that to the Government. I render my services as a software engineer, and I must pay income tax (~40%), and not VAT. How's my income different to the mechanic's income w.r.t. the kind of tax we pay? Or does the mechanic also pays income tax additionally?
  • kalleboo 6y ago
    The mechanic pays income tax additionally. Also the company you work for as a software engineer pays VAT on the products or services it sells to clients or customers.