Dining out in Chicago stacks five separate sales taxes on the bill
A restaurant meal in Chicago carries 11.25 percent tax. That figure is a stack: 6.25 percent for Illinois, 1.25 for the city, 1.75 for Cook County, 1 for the regional transit authority, plus 1 more for the body that runs the pier and convention centre. Few places layer taxes quite like American cities.
A conventional sales tax is charged when goods reach their final user, and the seller collects it at the till. Businesses buying stock to resell show a resale certificate and skip it, so the tax lands only once. Broader alternatives exist. A gross receipts tax hits every sale a business makes and can pile up as a product passes along the chain, a cascading effect critics dislike. Value-added tax charges every stage but only on the margin each seller adds, which avoids both cascading and the certificate paperwork.
VAT has won most of the world. More than 140 countries use it, and it supplies about a fifth of global tax revenue, leaving the United States one of the few holdouts with old-style sales taxes. Rates can be steep: Norway, Denmark and Sweden charge 25 percent and Hungary 27, with lower rates on things like groceries and books. In America 45 states levy a sales tax and 38 let localities add their own, so Los Angeles sits at 9.5 percent and Baton Rouge at 9.45.
Buying from out of state opens a loophole in theory closed by use tax, an identical charge owed by the shopper. California expects residents to report such purchases on their income tax return, but few do, except for cars, where the state collects when the vehicle is registered. The Supreme Court ruled in 1967 and again in 1992, in Quill v. North Dakota, that a state could not force a seller without a physical presence there to collect its tax, and only Congress could change that. Uncollected use tax on remote sales was projected at up to 54.8 billion dollars for 2011. Forty-four states and Washington, D.C. worked on a Streamlined Sales and Use Tax Agreement to simplify the rules, completed in 2010.
Economists at the OECD rank sales taxes among the least damaging to growth. Because everyone pays the same rate regardless of income, though, they are considered regressive, a burden that exemptions for food, clothing, medicine or rent can soften. Set them too high locally and shoppers simply drive to the next town.
Source: Sales tax
