Timeline for Sales Tax: Rounded Then Totaled or Totaled Then Rounded?
Current License: CC BY-SA 3.0
18 events
| when toggle format | what | by | license | comment | |
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| May 27, 2014 at 22:31 | comment | added | Darren Griffith | Rounding appears to vary by US state. Ohio changed their method in 2006: tax.ohio.gov/sales_and_use/information_releases/st200505.aspx | |
| May 18, 2012 at 22:07 | comment | added | Dylan Nissley | This etsy article says "According to state law, any extra sales tax you collect belongs to them, too." Unfortunately they do not cite a source for this information. | |
| May 15, 2012 at 21:02 | history | edited | JTP - Apologise to Monica♦ | CC BY-SA 3.0 |
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| May 15, 2012 at 18:57 | comment | added | Dilip Sarwate | Joe, yes, Massachusetts does indeed proceed the way you stated, and it also says that the sale price of all the (taxable) items must be totaled before the tax is computed (which is exactly the opposite of the "compute the sales tax separately for each item and add the results" approach that is being vigorously defended by MaddHacker in the comments following his answer). Also, the rule book you link to shows the tax return filed by the seller with 5% of the gross sales being sent to the State and not the sum total of all the sales tax collected. | |
| May 15, 2012 at 17:40 | comment | added | JTP - Apologise to Monica♦ | Dilip, please see my edit above. And link. No, I'm not going to pull the rules for all 50 states, but the one that I did happened to round as I proposed. | |
| May 15, 2012 at 17:34 | history | edited | JTP - Apologise to Monica♦ | CC BY-SA 3.0 |
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| May 15, 2012 at 15:31 | comment | added | Dilip Sarwate | @dnissley The overcollected tax in the amount of $6K in my example is not an item on which sales tax should have been collected. The $6K is income to the business and the business will pay income tax on it. | |
| May 15, 2012 at 15:23 | comment | added | Dylan Nissley | @DilipSarwate I think what Dheer is asking is: You don't have to pay taxes on over collected taxes? Don't over collected taxes count as sales? Which would be taxed? | |
| May 15, 2012 at 11:26 | comment | added | Dilip Sarwate | @Dheer That the business must pay income tax on the $6K is not relevant to the discussion; whether the tax sent in to the government is the sum of all the taxes collected or just the net tax on total sales is the issue. You think it is the former; I think it is the latter. I don't think this matter is handled in the same way as payroll taxes where what is withheld is exactly what is sent in. | |
| May 15, 2012 at 11:15 | comment | added | Dheer | @DilipSarwate: I slightly disagree. In you example the store cannot keep $6K as nice profit without paying tax on the 6K. If the store has collected specific tax from individual, that specific amount must go to Govt. It cannot keep additional money collected. | |
| May 15, 2012 at 11:03 | comment | added | Dilip Sarwate | @Dheer I am unpersuaded that businesses total up all the sales tax collected on each little $1 receipt and tell the government "Here is how much tax we collected and are forwarding to you". My contention is that the business tells the government "We sold goods worth a total of $X this quarter/month/week/day and collected $0.124X in sales tax which we are forwarding to you." And yes, very big businesses are required to deposit the amounts they collect/withhold as tax on a daily basis. | |
| May 15, 2012 at 10:54 | comment | added | Dilip Sarwate | Joe, I believed that the $1.124 would be rounded up to $1.13 everywhere but as ChrisinEdmondton points out, not in Canada. | |
| May 15, 2012 at 4:07 | comment | added | Dheer | @DilipSarwate: A large store is selling $1 each candy bar, the receipt is for individual item and tax calculated. If in a particular sale, a buyer buys qty 5, tax would be on $5. The sum of the taxes is tax the store needs to pay Govt and not recalculate again on $6 of sales. | |
| May 15, 2012 at 2:03 | comment | added | JTP - Apologise to Monica♦ | Dilip - Am I mistaken? Does the $1.124 round up instead of down for sales tax? | |
| May 15, 2012 at 1:21 | comment | added | Dilip Sarwate | If a large store sells 1 million candy bars at $1 plus 12.4% tax, it collects $1.124 rounded up to $1.13 from each customer, that is, $130K total. However, when it forwards the collected sales tax to the government, it shows $1,000,000 as the amount of sales, $124K as the tax it is responsible for collecting nad forwarding to the government, keeping the $6K as a nice additional profit. With mathematical rounding, it would collect $120K but owe the government $124K. Which option is it going to choose? | |
| May 14, 2012 at 23:05 | history | edited | JTP - Apologise to Monica♦ | CC BY-SA 3.0 |
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| May 14, 2012 at 22:32 | comment | added | Dilip Sarwate | @JoeTaxpayer Actually, adding $1 + $1 + $1 and then multiplying by 1.124 gives the same result as multiplying each $1 by 1.124 and then adding the amounts. The OP's second calculation is equivalent to what you want him to do; the only error is in the last line where he rounded down whereas in most jurisdictions (though apparently not in Canada), rounding is upwards | |
| May 14, 2012 at 21:23 | history | answered | JTP - Apologise to Monica♦ | CC BY-SA 3.0 |