Why not just display the whole price of an item before the customer brings it to the till/counter etc, it just makes so much more sense. That way when you’re shopping it’s so much easier to stay within your budget. (My only guess as to why they do this is to make the prices seem lower but it just feels so counterintuitive)
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Sales tax, it is based on the total purchase price.
I don’t think people typically go in with an exact dollar amount that they can’t spend above, and if they do they can quickly work out how much extra will go to sales tax. It’s really just not that big of a deal
Because prices (and price tags) are often set by corporate and tax rates can vary from town to town.
In the US, it’s largely about the fact that tax rates can vary from town to town in places, plus the psychological effect of the sticker price being lower, and also the simple fact that it’s always been done that way, so it’s just the norm by now.
In Canada, we also don’t display the full sticker price, but the reason is a whole hell of a lot weirder and more ridiculous: in most cases, displaying all taxes as part of the sticker price would be literally unconstitutional.
When I had my store in Texas I included tax on the item price tag. If I priced an item $25 that included tax, the amount you were gonna pay to walk out the door with it. Showing pretax amount never made any sense to me.
I also rounded up or down so I never had to deal with coinage. Every price was a whole dollar amount
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Sales taxes are not national. They are levied by the State, County and sometimes City. Each of these imposes separate tax rates, and doesn’t necessarily tax the same goods. Some states also have quirks like “Sales Tax Holidays” where sales taxes are suspended for a weekend.
The result is there are approximately 13,000 unique sales tax jurisdictions in the United States.
This means almost any company with more than two locations will have locations in multiple tax jurisdictions, which makes it a PITA to manage anything like advertising or promotional material, and also makes things like pre-labeled prices have wildly different profit margins depending where you are.
So instead of trying to manage all these price labels and having to not include prices in any advert they just use the pre-tax price.
Small businesses could price post-tax, but they have a hard enough time competing with chains on price already without putting bigger numbers on the labels, so also advertise pre-tax prices, because everyone’s expecting it anyway.
Not even everything in the store is taxed sometimes. Every state sets its own sales tax, and what can be taxed. Some states have no sales tax, some don’t tax groceries (unless prepared in the store) or clothes (up to a limit) and have higher taxes for other things like property taxes or entertainment or state income tax. Sometimes different cities within a state can add local tax and just charge a higher sales tax than outside that city.
But basically yeah – stores want to get you in with the lowest price. The normal price of a can of soup maybe $3.50 now, they advertise once in a while, 4 for $6. They’re not going to include tax on that price tag on the shelf if they have the same sale across the chain in multiple states that all have different added sales tax.
The actual answer is that, at least in my state, it’s illegal to add the tax for almost all things before totaling it at the register. One reason for this is that tax is added to the sum of all taxable items, and will be different than if the store pre-added tax to the price of each item (which would often result in rounding a penny per item). If you buy 50 items at a store, this could be the difference between paying $8 tax or $8.50 tax. People get testy if they do the math and find the taxes charged were significantly more than the total of the items times the tax percentage. Also, embedding the tax into the price makes it appear that the business is paying the tax. They are not, and they legally can’t. The consumer pays it, and the state wants you to know this.
Oh, and the one thing business do not do, at least in my state, is not show the tax so as to advertise lower prices. It just isn’t their motivation.
Source: used to run a business that charged sales tax.
Soon in the US, there will be tax in the form of tarrifs on items incorporated in the price, and then an additional sales tax will be charged on the higher price. Fun, huh?
Because it’s not the same tax rate everywhere
Let’s say it’s a phone at $1000
Better to advertise the price $1000 + tax then it’s the same everywhere
If you advertise at the total price including tax, people in Location D will complain loudly on social media that they are being charged more than people in Location A, and the phone maker gets the heat even though it’s out of their hands
Of course if everywhere had the same tax rate, the price could be shown including taxes and the problem would go away. But good luck with that.
Every state has its own sales tax. Some towns also have sales tax. National and regional stores don’t have to create separate merchandising for every store if they use the pretax price in all advertising.
Because we want to know how much extra we are paying in tax. If the tax were buried in the price the governments could increase the tax without our being aware. Remember that we are a nation founded on a strong distrust of government, a sentement that we find continually justified.
In addition to the already mentioned complexities in some states it is actually illegal to include sales tax on the sticker price. The reasoning behind this usually dates back to when the sales tax was first introduced and concerns over stores in a state with say a 5% sales tax marking items up 10% and claiming that was the sales tax. Essentially the state government wanted the sales tax to be both easily identifiable to the customer and transparent in how it’s calculated.
Psychology is a big factor. You have a $100 budget. You see something for $99.99 so you buy it even though it really costs $107 after tax. If actual price was listed you would be more likely to buy the $89.99 item that really costs $97. Stores certainly have the ability to have tax included on the price tag but they lack the motivation to do it.
Here’s something fun.
If you travel the 15.8 miles between Playa Del Ray to Walnut Park on the old California SR-42 (now Manchester Avenue/Boulevard + Firestone Boulevard) you go…
Playa Del Ray, through Westchester, through Inglewood, through South Los Angeles, through Southeast Los Angeles, and finally into Walnut Park
That means you’d go from…
10.5% sales tax in Playa Del Ray & Westchester
10.75% sales tax in Inglewood
Back to 10.5% sales tax in South Los Angeles & Southeast Los Angeles
And lastly back to 10.75% sales tax in Walnut Park
All within a 16 mile stretch. 🤣
…
Don’t even try to figure this whole sales tax thing out. Just go with it. LA county has 9.75%, 10.25%, 10.50%, 10.75%, and 11.25% tax rates just depending on where in the county you are. And this is just one County amongst dozens and dozens across the US.
Some entities are exempt from sales tax, like non-profit groups, the government, or retailers purchasing products to resell. This varies from whoever is levying the sales tax, except the federal government.
And, as you stated, it makes the price appear lower than what your actual paying.
Also, what is taxed varies from jurisdiction to jurisdiction. For example, most states tax clothing. But there are a few that don’t. I live in Minnesota, which does not tax clothing, for example. Many people are surprised when they visit and go to the Mall of America and find there is no tax when they buy clothing there.
As far as budget goes, if you have a max amount you can spend, deduct 10% from that for the actual prices, and you should still come under your budget in most places. Louisiana is the only state I can find that you could pay a combined sales tax (state, county, or local sales tax combined) over 10%.
I’m not sure why, but part of the reason might be that some goods come to stores with prices on them. Arizona Iced Tea says 99cents on it, I think. It will cost a slightly different amount in different areas, and you may wind up paying a few cents more if you cross the street.
I used to work in a convenience store and you didn’t pay taxes if you were on public assistance (think food stamps). It wouldn’t really make sense to give people money and then take some back as taxes. So the prices are correct in that case.
Honestly, it is a kind of frustrating system when you aren’t used to it. I don’t live in the US now and when I visit everything feels like a math problem, especially if I’m somewhere where I need to tip. So I need to calculate tax and then figure out a percentage to tip, huh? Fine, just don’t make me calculate the volume of my Mars bar. I hate geometry.
Taxes vary from state to state and even city to city. So if a vendor is running an advertised MSRP they would need custom packaging for each city. Same with other price advertising, if you look up a price online that price will change depending on where the store is located you are buying from, or where they are shipping the item too. It gets really complex really quick and would be a lot to manage.
Beyond the logistical part of it, retailers prefer the buyer be aware how much less the product would be without the government’s cut.
The U.S. has probably thousands of different tax rates that apply to products: each state has its own tax rate and each city may have its own tax rates. If the final price was the same, then the price received by the store after tax would vary.
When the GST was introduced in Canada (1991), retailers were given the option to post gross+tax or net prices. A few retailers (notably Woolco, F. W. Woolworth subsidiary) chose net, but quickly realized that the public went for the lowest advertised price, and since then everyone advertises gross+tax, save a few cases like food trucks that try to keep round figures.
It’s in government’s interest to make buyers aware of the tax component (and make them put the tax registration number on receipts), to fight non-collecting businesses. Officially, you can’t advertise that there is “no tax” during a sale promotion; you have to use wording like “we pay the tax” or “save the equivalent of the tax”, though enforcement is weak.