1

Tiered taxes are where one rate applies to amounts below a certain threshold and another for amounts above that threshold, there can potentially be multiple tiers.

Example:

  • below 6,000.99 = 7%
  • 6,001-12,000.99 = 6%
  • 12,001 above = 5%

In the above scenario an item costing 20,000 would be taxed at 6000*.07+6000*.06+8000*.08 = $1420

I'm looking for a real place in the world where this sort of rule applies. Specifically I'm looking to understand how the above rule interacts with the typical makeup of sales tax in the United States where the overall tax rate is composed of various sub-tax rates.

Example: Total Rate 8.25% is made up of

  • State: 3%
  • County: 2%
  • School District Tax Area: 2%
  • City: 1%
  • Special Utility District Tax Area: .25%

It is possible that there is no place that both has tiered taxes and has sub-tax rates. Unfortunately my google-fu has failed me and I have been unable to even figure out if tiered taxes actually exist or are just a thing that some tax software programs support.

3

The only place I see tiered rates in the US is when some jurisdictions have sales tax holidays where if you buy items of a type that are under a threshold, then there is no sales tax due. This frequently happens in late summer for back to school items. But they can also be linked to appliances, or emergency equipment. New shoes under $100 are tax free for one week in August. Certain appliances in November are tax free.

In the US sales taxes are already confusing enough. The tax applied can vary by item type and store type. A bag of chips bought at a grocery store have the sales tax added on. If they are bought at a restaurant they have the sales tax and maybe a local meals tax. It can be even different if the chips are bought at a fast food restaurant and considered a to-go item; they would avoid the meals tax. Also chips are taxed, but diapers aren't. The list depends on the state, and seams to be tweaked every year.

2

Tennessee apparently uses a tiered tax rate for sales tax called the Single Article Tax. I don't think it's quite to the extreme as you describe in the original question, with multiple tiers, but I believe it's what you're referencing.

The 7% state tax applies to the entire purchase price of the item or grouping of items. However, the local tax rate applies only to the first $1,600 of the sale price of a single article of tangible personal property. There is also an additional state tax of 2.75% applied to the amount in excess of $1,600 but less than or equal to $3,200.

Assuming the local tax rate is 2.25%, state and local tax due on the sale of a dining room table that sold for $4,000 would be calculated in the following manner:

State tax: full sales price is taxed at the general state tax rate 7%: $4,000 x 7% = $280.

Local tax: first $1,600 of the price is taxed at the local rate 2.25%: $1,600 x 2.25% = $36.

State tax: additional state tax at 2.75% on the price from $1601 to $3,200: $1,600 x 2.75% = $44.

Total state and local tax due on the sale of the dining room table: $360.

The FAQ for Avalara, a sales tax compliance service, also details the Tennessee Tiered Tax situation.

Tennessee Tiered Taxing Example:

State tax rate of 7% is applicable to all amounts.

Local tax rate between 2.25% and 2.75% is applicable between 0-$1,600 for all items.

State single article tax rate of 2.75% is applicable for all single items between $1,600-$3,200.

Example: Single item sold for $4000 to Nashville

State tax: $4000 * .07 = 280
Local tax: $1600 * .0225 = 36
Single Article tax: $1600 * .0275 = 44
Total tax: $360

Example: Two items sold for $2000 each to Nashville

State tax: 2 * ($2000 * .07) = 280
Local tax: 2 * ($1600 * .0225) = 72
Single Article tax: 2 * ($400 * .0275) = 22
Total tax: $374
2

Here's one example from Canada:

In my home province of Ontario, the "Harmonized" Sales Tax (HST) of 13% is charged on most goods and services. HST is made up of a federal portion of 5% (a.k.a. the Goods and Service Tax, GST), plus a provincial portion of 8% (a.k.a. the Provincial Sales Tax, PST).

However, for restaurant transactions totaling under $4.00 (typically fast food), the provincial portion is rebated, so only the federal portion of 5% is actually charged.

The PST in that case is your example subtax with a threshold. It's even more "special case" because the $4.00 threshold is category-specific. I'll also remark the threshold is for applying a rebate on the whole amount of PST that would have applied to a transaction under the amount, which isn't quite the kind of tier you're describing — your tiers look to me to work more like marginal tax rates.

Sales taxes can be complicated.

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