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Why Sales Tax Is Not Included In The Price Like VAT

Ever wondered why sales tax is added on to your purchase, and not included like VAT? We explore the reasons why.

Why Sales Tax Is Not Included In The Price Like VAT

I remember the very first time going to Disney World and buying my first t-shirt. I grabbed my size and went to the counter to make my $19.99 purchase. I pulled out a fresh and crisp $20 note from my recently acquired travel agent currency exchange stash, to be suddenly taken back by the friendly cast member asking for $21.19.

After working in retail throughout my teen years the thought that's illegal crossed my mind. You cannot display a price for something and charge more at the till. For the sake of a couple dollars I just paid the nice lady and decided to investigate later. I looked at my receipt and the t-shirt was listed at $19.99, but there was sales tax listed at $1.20.

As many of you know, sales tax is added on top of whatever the price of the merchandise you're buying, unlike here in the UK where VAT is included in the price (solicitors notwithstanding).

My question has always been why was that the case? While there is no definitive answer, there are several reasons why it's like this way.

Sales tax rates

Sales tax rates differ from state to state. Manufacturers of goods don't have to worry about pricing their products to each tax region with different prices. They can sell their cans of coke for $x at a flat rate to everyone, because...

Sales tax only charged to consumer

Unlike VAT where it's charged each time a product changes hand, sales tax is only charged to the end consumer. If I'm a VAT registered business, and I buy a chest of drawers to resell, I will pay VAT on that product to the supplier, I then claim that VAT back, and then charge my customer VAT and pass that along to the government. With sales tax, only that last stage takes place.

Physiological trickery

You likely know the common retail tactic of pricing a £20 item for £19.99 to make it look cheaper - the same applies here. A retailer can sell a bottle of coke for $1.99 and it looks cheaper than $2.15. I imagine on a country-wide scale, the reduction in sales due to what that physiological barrier creates likely dents the economy.

Disney's sales tax

Walt Disney World property actually spans over two counties. Most of the Walt Disney World Resort is in Orange County which has a sales tax rate of around 6.5%, while the most southern Resort hotels are in Osceola County which has around 7.0% tax rate.

Just remember, unless something is listed as "sales tax included" (which some beverage stands at the parks are), assume the cost of what you're buying is around 6-7% more than the listed price.

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This article was posted on 08-Feb-2020
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