Sales tax refers to the consumption tax levied on good and services at the point of purchase. The tax is imposed on the purchase price of most retail products and services.
The seller has an urgency type of obligation to remit the amount of sales tax collected from all the customers to the government. (Donald & Fox, 2001).
The tax is normally set in percentage by the concerned government authorities that are responsible for charging it. In some good and services the tax can be included in the price or it can be treated separately from the price. Sales tax is applicable to some goods and services especially those that are needed by majority of the citizens. It is therefore important to note that no one is exempted from the sales tax. An expensive sales tax therefore means that most of the goods and services are heavily taxed compared to the taxation that is implied in other states. In the United States for instance, sales taxation tends to differ from one state to another. This depends on the prevailing economic conditions and the budgetary projections. In the United States, California seems to be having the highest sales tax of 8.5%. This is expensive when compared to other states in the same country. Colorado for instance has a sales tax of 2.5 %. An expensive sales tax means that the government collects a lot from the population to meet the various expenditures in the budget. It is indeed from the budget that decisions to raise or lower the sales tax are arrived at. As much as the government might be benefiting from an expensive sales tax, the low income earners are the ones who really feel the effects of the expensive sales tax. This is normally depicted in consumer behaviors in the concerned states. Sales tax has various implications on the products or services. (Schwieterman,2009).
Sales tax is determined by the government. During bad economic times, the government can decide to raise the sales tax to levels that can be considered as expensive amongst the consumers and distributors. This can be done in an effort to try and solve budget problems, When a government is in deficit then raising sales tax is amongst the strategies that can be used to source for additional funds to cater for the deficit. An expensive sales tax has a direct implication to the consumers. The consumers depend on various products in the market. The prices of the products have the sales tax included. This means that if the sales tax is high, then the prices of commodities escalate. The purchasing power of the consumers is affected with an increase in the sales tax. Economists argue that a higher sales tax results in inflation that is characterized with the loss of purchasing power amongst the consumers. (Donald & Fox ,2001).
An expensive sales tax regime has implications on shopping behavior amongst consumers. Consumers tend to reduce their spending on commodities with an expensive sales tax. An expensive sales tax means that consumers have to part with extra amounts for the same commodities. The higher cost of products in one country leads to cross boarder shopping. In the United States if the sales tax is expensive in one state then there is a movement from that state to neighboring states in search for lower cost commodities. Incidences of tax evasion also increase with an expensive sales tax. This has been noticed in products such as jewellery and valuable metals. (Donald & Fox ,2001).
An expensive sales tax is not friendly to the business environment. This is because, the consumer’s purchasing power is eroded and therefore the effect is transferred to the investors who cannot make profits because of the reduced sales. Businesses are forced to relocate to other places where it is not expensive to conduct business. Investors enjoy working in an environment whereby the consumers have a high purchasing power. This makes their products and services to move faster. This is unlike in an expensive sales tax situation whereby the consumers no longer have the high purchasing power due to the high cost of products in the market. The movement of products is very slow in such an environment.
An expensive sales tax is not conducive for economic growth. This is because besides increasing the cost of goods and services, it also threatens jobs. When businesses relocate due to the high costs of operation, employees loose their jobs. Apart from relocations, companies adopt cost cutting strategies like downsizing. This also results in looses of jobs and consequently affects economic prosperity in a country. Allers,De Haan, and Sterks (2001).
An expensive sales tax has greater implications to the low income class in the society. This is because, sales tax is applicable to consumer goods such food, clothing, medicine and other essential goods that are widely needed by the low income earners. Sales tax is not applied to things such as real estate investments, stocks and bonds, Attorney fees, Tuition fees and many other things majority that are utilized by the high income groups in the society. This means that if the sales tax is expensive, then it is the low income class that is currying the burden and therefore suffering the most. The implementation of tax in a state really matters as far as fairness in the economic life is concerned. In states where there is focus on cushioning the low income class, there are tax exemptions for some goods and services that are utilized by the low income class. This can be undertaken for instance on commodities such as gocercies.This is meant to reduce the burden that has been put on the low income earners who have to pay heavy tax yet they earn little while on the other hand the high income class does not struggle with tax. In the implementation, there can also be an extension of taxation to some services that had initially been exempted for instance. This is done in an effort to try and set a balance between the two economic groups and ensure that they all contribute fairly to taxation. (Schwieterman,2009).
E-commerce has a lot of contribution towards an expensive sales tax. When the sales tax increases most of the consumers opt to purchase their commodities online. With online systems, they do not pay the required sales tax as in the ordinary purchases. Online stores are notorious for evading sales tax. This is because of their virtual nature. Some of them are hardly noticed by the tax collection department. Therefore e-commerce can be considered to be a major contributor to an expensive tax regime. With the development of technology and the associated online shopping, the government looses significant amounts in terms of sales tax. This has resulted in a declining trend in the sales tax bases in various states. To help address the declining trend in sales tax collection, state authorities have been observed to be opting for an increase in the sales tax. This ultimately has ultimately led to the expensive sales tax regime that is being witnessed in some of the states in the United States. Allers,De Haan, and Sterks (2001).
The standards of living.
The standards of living in a state are determined by the sales tax applied on goods and services. When the sales tax is affordable, most of the consumers can comfortably purchase goods and services that are the indicator of improved living standards. However when the sales tax is expensive, most of the consumers loose their purchasing power. This has an impact on the living standard in the sense that most of the people cannot afford the very essential commodities and services that can be used to indicate a high quality standard of living. Therefore an expensive sales tax has the consequence of negatively affecting the living standards of the people. From this view point, one can conclude that a n expensive sales tax leads to underdevelopment in the concerned states. (Schwieterman,2009).
The rate of sales tax in a state determines the level of investment that can be put in that particular state. Most investors both local and foreign like a friendly tax environment in their chosen areas of investment. When taxes are low, the cost of running business becomes low. After all, no business thrives in an environment where there is heavy taxation especially on essential goods and services. An expensive sales tax means that investors would have to lower the prices of goods and services so as to improve the consumer purchasing power. Without lowering prices most consumers would opt for alternatives where tax is exempt or where the taxation is at low levels. An expensive tax regime means that there would be lower levels of investment. Investors opt for cheaper alternative areas where taxation is low so as to maximize their profits. (Schwieterman,2009).
The cost of business.
An expensive sales tax regime means that the cost of operating business in such an environment is high. The rate at which businesses are established in such an environment is very low because of the fear that is created. It is only businesses that are willing to venture into the environment with large capital inputs that can survive. Otherwise when the sales tax becomes expensive, most businesses are threatened with collapse because of the higher costs of running the businesses. (Schwieterman,2009).
By the virtue of the fact that an expensive tax regime affects nearly all the aspects of business and life, it is important to underscore that it affects the overall productivity of the state. When the population feels pressed with taxation, there is a bad attitude that develops towards the government. This is particularly evident when there is no improvement in services by the government after heavy sales taxation. The productivity of the people declines when they feel that their needs are not being addressed by the government despite the expensive taxation. When the taxation is expensive development in terms of industry and business declines. This has negative implications on the productivity of the concerned state. (Donald & Fox ,2001).
In conclusion, it is vital to maintain that an expensive sales tax affects the life of the consumers to a great extent. Even though the government might be aiming at raising its revenue through increasing the sales tax, it has negative implications to the consumers. Economic growth is not easily achieved when the citizens are carrying the heavy burden of paying the sales tax. It is important that other alternatives should be sought instead of raising the sales tax which has far reaching repercussions to the customers. Categorically stating, the low income earners are the ones who suffer most from the expensive tax regimes. Instead of helping to address economic issues in a state, an expensive tax regime tends to widen the gap between the low income earners and the high income earners. Therefore an expensive sales tax is a matter that should be discouraged amongst the government policy planners and economists.