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Sales tax creates more unnecessary pain than value added tax

dyno-might.github.io

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Re: Sales tax creates more unnecessary pain than value added tax

#81

Post by disiplus »

gamblor956 wrote: post #39

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…

(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.

Re: Sales tax creates more unnecessary pain than value added tax

#82

Post by [deleted] »

ghgdynb1 wrote: post #24
rgbrenner wrote: post #11

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 emp…

I’m going to bookmark this as an example of how to clearly and specifically point out a bunch of issues with a source while maintaining a constructive tone. This type of comment makes HN the best forum for discussion on the Internet.

[deleted]

Re: Sales tax creates more unnecessary pain than value added tax

#83

Post by gamblor956 »

gowld wrote: post #17

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.

Sellers of used products are still required to charge sales tax if they are in the business of making such sales.

Re: Sales tax creates more unnecessary pain than value added tax

#84

Post by dan-robertson »

rgbrenner wrote: post #11

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 emp…

I disagree with this reading of the article. Perhaps the author edited the article after this comment but I see it structured as:

1. Small introduction briefly mentioning that while exemptions do exist for business inputs, tax systems often fail to have exemptions in all the cases that they ought to (ie the cases that would be exempt under a VAT regime), including four links to estimates of these failures

2. Mention that the real world lies between the following example and a true VAT system.

3. Detailed toy example of the effects of these inefficiencies (ie in the cases where the exemptions do not apply)

4. Brief discussion about reasons for the current system

I’m going to guess that the reason you missed this is that two key points of the argument are hidden in the introduction and the article is dominated by the (perhaps) less important worked example. But maybe you think the claims in the introduction are so obviously false that you don’t see any need in mentioning them, or maybe they were added to the article after you read it.

Re: Sales tax creates more unnecessary pain than value added tax

#85

Post by giantg2 »

dan-robertson wrote: post #79
giantg2 wrote: post #29

Earlier quoted context omitted.

Not to mention, the example is misleading by ignoring the the government's revenue requirement. If the sales tax system worked the way he says it does, then a 20% sales tax would have to be replaced by a higher VAT tax in order for the government to get the tax revenue they "need" (desire). I don't think any government would take such a massive drop in tax revenue as is implied in the example.

The absolute percentage isn’t important. The problem is that when sales tax fails to work as a consumption tax, it gives a tax incentive to be vertically integrated. And there is implicitly a suggestion that encouraging companies to become more vertically integrated is not a desirable property of the tax system.

The percentage doesn't matter, but the example is clearly misleading on the relative tax revenue collected under the example.

How does it provide a vertical integration incentive? Sales tax is only applied at the final step (or rebates if applied before that). The main integration incentive is the ability to reduce margin at each step (if needed) and have tighter supply chain control.

Re: Sales tax creates more unnecessary pain than value added tax

#86

Post by gamblor956 »

rahimnathwani wrote: post #54
asdfaoeu wrote: post #34

Earlier quoted context omitted.

Is that all states? That just sounds like VAT

The comment to which you replied said you can deduct sales taxes paid against income taxes . I think this means that paying $10 would reduce your income tax by $3 (if income tax is 30%). This is different from getting a 100% credit ($10) which is what you'd get with a VAT system.

No, you don't get a 100% credit for VAT against your income taxes; the credit only exists as an offset against your VAT payable liability.

If for some reason you can't offset your input VAT, then you get the same deduction against your income as you would for a sales tax, because it's part of your expenses. BUT NOTE: that if the acquired good is depreciated, then in both cases (VAT or sales tax) the tax-related deduction is spread over several years rather than all at once.

Re: Sales tax creates more unnecessary pain than value added tax

#87

Post by vonmoltke »

chrischen wrote: post #46
mywittyname wrote: post #36

Earlier quoted context omitted.

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?

Are you talking specifically about cash transactions? Because ebay collects sales tax now.

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.

Re: Sales tax creates more unnecessary pain than value added tax

#88

Post by bearbin »

bearbin wrote: post #80
lotsofpulp wrote: post #55

Earlier quoted context omitted.

I wasn't specifically referring to the concept of exempting resellers from paying sales tax for items they are reselling. I was questioning the problem of manufacturers selling directly to customers. I prefer to cut out as many middlemen as possible nowadays, in order to ensure the highest probability of getting the highest quality product. I know Walmart gets lower quality products than other places and whatnot, and…

Indeed, there's nothing _wrong_ with direct-to-consumer sales and there are certainly some advantages as a purchaser - not least avoiding any chance of getting counterfeit goods. But there are certainly downsides too. Especially with the advent of internet shopping, improved delivery speeds, and reduction in cultural inertia, going direct has become more convenient. That said, while DTC shopping may be _more_ conveni…

Actually, I realise there is another point here, namely the distinction between manufacturer, brand and retailer.

Brands are somewhat confusing to analyse: a brand may manufacture its own products, or it may buy them in; a brand may sell its own products, or it may leave this to conventional retailers. In its purest form the brand does neither and simply exists to advertise itself and collect rent from other market participants.

Generally, it seems that pure-play brands, and DTC sales by manufacturers, are fairly rare, while brands that also sell products to consumers, or that manufacture their prducts are the most common. So it seems that in reality, neither total specialisation as a pure-play brand nor as a triple-play fully vertically integrated brand is efficient, but instead some combination of branding with another function is optimal.

Re: Sales tax creates more unnecessary pain than value added tax

#89

Post by gamblor956 »

disiplus wrote: post #81
gamblor956 wrote: post #39

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…

(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 ot…

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.

Re: Sales tax creates more unnecessary pain than value added tax

#90

Post by [deleted] »

dan-robertson wrote: post #84
rgbrenner wrote: post #11

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 emp…

I disagree with this reading of the article. Perhaps the author edited the article after this comment but I see it structured as: 1. Small introduction briefly mentioning that while exemptions do exist for business inputs, tax systems often fail to have exemptions in all the cases that they ought to (ie the cases that would be exempt under a VAT regime), including four links to estimates of these failures 2. Mention…

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