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On a recent trip to San Francisco it was always a surprise to see what to pay in stores. It was never as simple as just adding all the published prizes. There was always a surplus of taxes. Sometimes it was just an additional 50ct, but sometimes the increase in prize was substantial. The most extreme case being a bag of apples with a publised price of 1.99 but a final price of 4.50. Isn't there a single VAT and how can I know the prize to expect? If the taxes apply to everyone, why not simply publish the price including taxes?

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Tax will never double the price of an item. Most likely the apples were 1.99 per pound, and you bought a 2+ pound bag of them. Most food like apples would actually be tax free. –  Doc Oct 27 '13 at 9:14
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This isn't specific to San Francisco. This is basically the way prices work everywhere in the USA. –  Fake Name Oct 27 '13 at 9:39
    
@FakeName And in Canada as well, where the VAT percentage is different per province –  Bernhard Oct 27 '13 at 11:19
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In Canada, I think tradition/influence from the US plays a role as well. Having a price per province does not seem like a big deal and taxes could easily be included. Eurozone countries are sometimes smaller than a Canadian province, have different VAT rates and yet taxes are always included in prices. Also, some products have just one retail price in several countries, which means the retailers actually set different before-tax prices so that the apparent price is the same and “absorb” the difference. All this is perfectly doable if the law made it mandatory. –  Relaxed Oct 27 '13 at 13:24
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I was amazed by this as well when visiting the USA. In Europe, the price is not printed on the product (because of course, it may be more expensive in some stores than in others), but at the shelf. In the computer age, there is no reason whatsoever why each store can't label the actual customer prices on the shelf. They don't do it because it's legal not to do it. –  gerrit Oct 27 '13 at 20:03

4 Answers 4

up vote 15 down vote accepted

There is no general VAT in the US but various sales taxes, which means that there isn't a single tax rate that shops could easily include in all prices. Depending on the location, there could be a sales tax from the state, county, city or even other institutions (transport authorities, etc.) so you cannot even set a price and print labels for a state or a metropolitan area, let alone nationwide.

Also, displaying lower prices is generally advantageous so as long as they don't have to do it, it would seem retailers have very little incentive to figure a way to deal with all this. Even if one would consider doing it (which is not the case as far as I know), they would just make themselves look bad compared to the competition. To use an analogy, even when several parties really wish to reduce their weapon stockpiles, it's too risky for one of them to disarm unilaterally and find itself alone without weapons when the others still have them (or in this case, display higher after-tax prices when everybody else advertises with before-tax prices).

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Ah, comparing apples and guns :) –  Bernhard Oct 27 '13 at 11:21
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San Francisco sales tax is 8.75%; but the rate varies from one town to the next (ex nearby Berkley and San Mateo are 9.0 and 9.25% respectively). Some items, including Unprepared food, bakery items, and hot beverages, are exempt from sales tax. boe.ca.gov/cgi-bin/rates.cgi?LETTER=S&LIST=CITY –  Dan Neely Oct 27 '13 at 13:12
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so you cannot even set a price and print labels for a state or a metropolitan area, let alone nationwide Don't they have computers? Surely it would be easy to display different prices in different stores? If it's known at checkout, it should be known at the shelves of the store or — at least — using some kind of in-store portable scanner. I rather think the reason is your second point: if retailers can advertise a price lower than the real one, they'll do so. Plenty of products in i.e. Sweden cost more in one store than in another, simply because the other store is more remote. –  gerrit Oct 27 '13 at 19:59
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Aren't taxes always to high, no matter the percentage ;) –  user141 Oct 28 '13 at 1:35
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My own currency is Euro as most of you and to make abstraction of taxes in US/Canada, I just read the tags as if they are in euro. This is very approximate, but if you consider the exchange rate being between 1.25 and 1.33 and the tax rate being 10 to 15% (so 1.1 to 1.15), you have a very rough comparison but very easy to calculate (easier than tagged price*1.1/1.3 +- 10% depending on non-displayed factors - I know food is very little taxed for example). –  Vince Oct 28 '13 at 12:43

I would say that because the law is not on the consumer side in the USA and therefore does not require the total price to be displayed.

Most shops will therefore leave off taxes etc as you are then more likely to buy an item. (Trustworthily companies loose trade due to other companies misleading consumers on prices, so therefore quickly all the companies become as bad as each other.)

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First of all, there's hardly anywhere in the United States with a sales tax over 10% much less a rate of over 50%; you either misunderstood the price of your apples or were overcharged.

Retail sales tax in the US and Canada is inherently different than VAT (value added tax) charged many other places, sales tax is charged based on what the retail sale of a product vs. VAT accumulating through each stage of the production process.

While now easily surmountable, before computerization various local (city and county) sales taxes across the country posed a burden to retailers who operate in multiple places to calculate prices. Another reason for tax being is giving transparency as to how much tax governments are collecting.

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VAT and before tax prices are mentioned on receipts everywhere in the EU. I am also not sure I understand what you mean with “accumulating through each stage of the production process” or how this would have any impact on prices posted in shops. –  Relaxed Oct 3 '14 at 22:46
    
The VAT-break-down is listed on receipts many places, but customers don't always get receipts. –  Carl Oct 3 '14 at 23:07
    
Canadian HST is the same as VAT, but is not usually included in the ticketed price. Some ethnicities (Korean fast food retaurants for example) prefer to roll the HST into the price so you may pay what you see, or maybe not. –  Spehro Pefhany Apr 30 at 18:07

One of the reasons this is done by sellers is so that consumers know who to blame for the prices they are paying. In particular, the seller wants the consumer to know that it is not the seller's fault that the product costs 10% more than it needs to (or whatever the rate is). Thus, the seller lists how much of the total price is attributable to sales tax so that the consumer knows that at least that portion of the price is attributable to the government. This is explained in greater detail below.

Sales taxes (and VATs) are levied on sellers, not on consumers. However, if the seller is going to have to pay a tax for selling you the product, they are going to have to charge more for the product in order to offset this additional cost to them. Specifically, if the tax costs the seller $X, then the seller is going to have to increase the price of the product by $X in order to break even. However, recognizing that consumers are price-sensitive and that they will not be happy about paying $X more for the product, the seller wishes to direct this consumer angst away from themselves. In essence, the seller is trying to protect themselves from the backlash resulting from the higher price by pointing out that they are not the reason for the higher price, the government is the reason.

In furtherance of the goal of directing consumer angst away from themselves and toward the government, the seller advertises the "pre-tax" price. This communicates to the consumer how much the seller would have been willing to sell the product for if only they didn't have to pay that darned tax.

Of course, the above-explains why the seller wants to list separately the pre-tax price and the amount attributable to tax, but it doesn't explain why the seller does not also list the post-tax price in addition to the other information. This, I assume, is done because the sellers believe that listing the higher price will have a negative effect on buying decisions. Sellers believe that consumers are affected emotionally by the listed prices, even when the consumer knows logically what the ultimate price will be. In particular, sellers believe that, even if a consumer logically knows that the ultimate price will be $Y, they will be more emotionally inclined to purchase the product if what they see on the label is less than $Y. The theory is that at least part of the emotional reaction of the consumer is tied to the price as seen, even when the consumer knows that price will increase at checkout. This is the same reason sellers prefer the ".99" format (i.e., $9.99 is preferred to $10.00), because they believe a buyer who sees $9.99 will be more emotionally receptive than one who sees $10.00, even though logically the prices are essentially the same. Thus, if listing the total (tax included) price makes consumers less emotionally receptive to the product, then sellers will be inclined to not list the total price if they can avoid it.

In addition, listing three pricing information items (base price, sales tax, total price) next to each product might not be desirable (or even feasible) in certain settings, such as limited space settings (e.g., menu board of a fast-food restaraunt). If there is only room for one priceing infomration item, then the seller is obviously going to favor the lower number.

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