It was intended to be a fairly uneventful trip to the store. For four William Paterson University football players, it would turn out to be a whole lot more.
On August 25, Jelani Bruce, Anthony Biondi, Thomas James, and Kell’E Gallimore stopped in at Buddy’s Small Lots in between practice sessions. They walked straight into the store – lights on and doors unlocked – without knowing that the store was actually closed. Unfortunately for Buddy’s, the lock on the door had malfunctioned and the store’s lights were on, giving the four Division III football players the impression that the store was open for business.
When it came time to pay for their items, the boys couldn’t find a store clerk. They could have walked right out the door. I’m guessing that’s what most people figured they’d do. But they didn’t. Instead, Wide Receiver Thomas James pulled $5 out of his pocket, waved it at the surveillance camera, and left it on the counter. And before they left, Defensive Back Kell’E Gallimore added 80 cents: for sales tax.
The story could’ve just ended there and it would have still been remarkable. But it didn’t.
The boys took the time to stop at the Rite Aid next door to alert the staff that Buddy’s appeared to be empty. Rite Aid called the police and eventually, the police called Buddy’s manager Marci Lederman, advising that there had been a break-in. Only, we now know that wasn’t what happened at all.
Like Rick Reilly, I love this story. I love that these boys did the right thing. And I love that they’re getting a ton of positive press.
As a tax geek, though, I love the other story here: sales tax.
What Gallimore did – reaching into his pocket to estimate the sales tax – encapsulates nearly everything that’s wrong with our current sales tax system. We know (we think) that we have to pay it but we’re not always sure how much.
The sales tax rate in New Jersey is actually 7%. For a $5 purchase, that would have worked out to just 35 cents: about half of what Gallimore figured.
But I don’t chalk it up to bad math. I chalk it up to bad policy.
Unlike many other countries where the sales (or equivalent) tax is included inside the price of the goods, sales tax in the United States is not a “what you see is what you pay” pricing system. Our sales tax is calculated on top of the price of the item. And if that was as tricky as it gets, it might be okay. But it’s not.
You see, tax rates in the U.S. vary not only by state – but within states.
On the state level, almost every state imposes a sales tax. The exceptions are Alaska, Delaware, Montana, New Hampshire, and Oregon.
Thirty-eight states also impose a local sales tax on goods and services; three of those states which impose a local sales tax are among those states that don’t charge a state sales tax. And in some areas, there can be additional sales tax on top of basic state and local sales taxes. The highest total sales tax rate in the U.S. can be found in Tuba City, Arizona, which has a combined rate of 12.725% consisting of three parts: 5.6% state tax, a 1.125% Coconino county tax, and an additional 6% tribal tax levied by the To’Nanees’Dizi local government.
In at least one municipality, local sales tax only is collected in a state which otherwise has a state income tax. Salem County, New Jersey is exempt from collecting the 7% state sales tax but does impose a 3.5% local tax.
Confused yet?
It gets more confusing. There is practically no uniformity between states that impose a sales tax on the taxation of goods and services. Numerous exemptions and exceptions apply.
For example, most states exempt food but about a quarter does tack on sales taxes for groceries at the register; Mississippi holds the honor as taxing its residents the most in the country to put food on the table. As to what constitutes groceries? That depends on what state you’re in.
In New York, chocolate-covered marshmallows are taxed as candy while regular marshmallows or chocolate chips and bars sold for baking are not.
In 2007, taxing officials came under fire for imposing a sales tax on pumpkins which they decided were used primarily for Halloween decorations (taxable in Iowa) and not food (not taxable in Iowa). An exemption was available if taxpayers they filled out a form. Yes, a form. To eat pumpkins tax-free. The rule was eventually reversed.
That same year, Iowa also found itself involved in chocolate wars when it ruled that the definition of candy “shall not include any preparation containing flour and shall require no refrigeration” making a Milky Way Midnight taxable while the classic Milky Way was not.
In my own state of Pennsylvania (brochure downloads as pdf), it’s not so much groceries (mostly exempt) as clothing that causes confusion. Clothing, generally, is exempt from sales tax while accessories are not – causing the retail establishment where I worked to advise that we should not add sales tax to anything with cloth or cloth bits on it… That meant that a plastic hairband was taxable while one with a bow on it was exempt; that’s not quite the rule, it turns out, since belts and suspenders are always exempt – cloth or not. Prom dresses and tuxedos are taxable but all other dresses and suits are not. And U.S. and Pennsylvania flags are exempt from taxation while other flags are taxable.
You get the point.
Despite the fact that many pundits single out sales taxes as “transparent” since they are separately stated, they are far from understandable. They’re actually confusing for most taxpayers because of varying rates, available exemptions and exceptions and inconsistencies between the states and localities. I noted earlier this week, when writing about the tax protestor who paid his tax in single dollar bills, that “I would venture to say that most homeowners know more about the totals of their real estate and school taxes than they do about other hidden (or nearly hidden) taxes like sales taxes…” I stand by that.
Sales taxes – even though they appear as a line item on your receipt – remain perplexing for a number of taxpayers. Like those William Paterson football players, we all know we have to pay sales tax – but we don’t always know how much. So, like those players, we just do the best we can. In the case of these guys, fortunately, their best was better than most.