Author: Anita Homesley
First Authored: April 10, 2012
Last Revised: June 13, 2018
Students will learn about the history and interesting facts about sales tax. They will also be able to both read a tax chart and figure sales tax with a calculator. Common taxable and non-taxable items will be included in the lesson.
Lecture
This is in the downloads if you want a hard copy. It has more information than the talking points on the PowerPoint.
Teacher's notes on PowerPoint.
Slide #1 Sales Tax
Slide #2 A tax imposed on the sale of goods is depicted on the walls of ancient Egyptian tombs, which have been dated as far back as 2000 BC. These paintings describe the collection of tax for specific commodities, such as cooking oil.
Slide #3 Although the United States government has never used a general sales tax, an excise tax on whiskey enacted in 1791 was one of its first fundraising efforts. The unpopularity of this tax with farmers on the western frontier led to the Whiskey Rebellion in 1794.
Slide #4 The first broad-based, general sales taxes in the United States were enacted by Kentucky and Mississippi in 1930, although Kentucky repealed its sales tax in 1936.
Slide #5 By 1940 at least 30 states had a sales tax. Currently 45 of the 50 states levy a sales and use tax against purchases. The five states that do not have a sales tax are: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Slide #6 Sales taxes are one of the largest sources of revenue for state governments. Retailers and other merchants collect the sales tax at the point of sale by adding it to the price of a consumer's purchase. State sales tax rates range from 4 percent in some states to 7 percent in others.The three biggest uses of sales tax revenue are transportation expenditures (highways, roads and bridges), public education and aid to local governments.
Slide #7 The Tax Foundation estimates the average American household pays $3190 in corporate income taxes per year.
Slide #8 Sales tax is generally considered a higher burden on low income families as they spend a greater percentage of their income on tangible items which are taxed. Food is even taxed in some states. By comparison things like landscaping services, attorney fees, private school tuition, stocks and bonds, and real estate investments are not taxed but are typically made by higher income households.
Slide #9 Another issue is avoiding sales tax by buying online as opposed to buying locally. What effects does that have on brick and mortar businesses or click and mortar?
Slide #10 A lot of our local businesses are closing because they can't make it as they lose business to online shopping, they may be paying higher rents because of location (mall, downtown) as opposed to an online business may be in a cheaper rent zone.
Slide #11 The Streamlines Sales Tax Project is an organized effort by states to standardize tax laws among states and begin taxing mail order and internet sales.
Slide #12 How does the state get the $? Stores collect the tax and must send a check quarterly for the amount collected. Jan- March sales= tax payment in April.
Slide #13 Interesting facts:
Slide #14 Recently in New York sales tax was eliminated for clothing and shoes if the item is under $110. How do you think this affects business? Are they happy about it?
Slide #15 We would think that this might stimulate sales but several business owners that were interviewed did not feel it will make much difference in people's thinking and really change how much people spend. One of them was very concerned about the paper work involved, how do you keep track of sales that are under $110 or over $110, is it an accumulative purchase or a single item? The bookwork was not worth the advantages said one business owner.
Slide #16 In 2010 California had the highest sales tax in the United States. Supplementary sales tax may be added (with voter approval) by cities, counties, special districts. In 2009 the tax rate in the city of Pico Rivera had a combined tax rate of 10.75%.
Slide #17 There are crazy laws that coffee is not taxed if it is for take-out and not sold with any other food, but if consumed on the premises, it is taxed like a restaurant. A local yogurt shop always asked you if you were going to eat it there or take it to go. It was taxed if you ate in on the premises but not if you left.
Slide #18 The purchase of gasoline in California can be a form of triple taxation, the tax is levied on both the gasoline and the federal and state excise taxes and if the purchase is by a resident of California it has been taxed 3 times. The excise tax alone is 18 cents a gallon, and then sales tax is also added.
Slide #19 In Texas the state provides one tax free holiday per year, this is generally in August for back to school. Clothing and school supplies under $100 is exempt for a period of Friday through Sunday. Washington, DC has two shopping holidays per year, back to school and one weekend before the holiday season, but the back to school one was repealed in 2009.
Slide #20 When you see a "NO TAX DAY" how does that work? Are there forgiveness periods for sales in California? No the business must pay the tax.
Slide #21 There are some states which does not exempt food from sales taxes, some of those states are, Alabama, Arkansas, and Georgia.
Slide #22 In California taxes are based on the county in which it is registered. People used to buy their cars in Oregon where there is no sales tax and then bring them into California. California instituted a use tax (the same rate as the local tax rate) if taxes were not paid on the vehicle.
Slide #23 In Connecticut textbooks for college students only are not taxed.
Slide #24 Delaware does not have a sales tax but does impose a business and occupational tax on gross sales, which is not good if the business person has high overhead in the form of rent or cost of goods as opposed to someone like a service where there are no goods purchased as part of the transaction.
Slide #25 In New Jersey any clothing or accessory made of fur from the hid or pelt of an animal that is valued at $500 or more is subject to a 6% Fur Clothing Gross Receipts Tax.
Slide #26 In California, if the purchaser is from a state without sales tax, California businesses do not charge them tax if the item is being mailed to that state.
Slide #27 In Pennsylvania clothing and shoes not taxed but eating at a salad bar would be.
Slide #28 In Texas, if a business pays their taxes on time, they receive a .5% discount for prompt payment.
Slide #29 In France the price of the item includes the tax, so the consumer pays ticket price and the business must figure the percentage of f of gross sales.
Slide #30 Even if you earn or win free items, you are required to pay the tax.
Resources and Materials
Lecture
Ask if chicken is taxable or non-taxable in California? Have students raise their hands to vote on taxable or non-taxable? Ask them why they think that chicken is taxable or non-taxable. Cold raw or cooked chicken is not taxable, hot chicken is taxable.
How about water? Spring water what we buy to drink, it is not, distilled is mainly used in appliances, such as an iron, but is still drinkable or potable, it is taxed. Ice is taxed.
Salt for our table or cooking is not, salt for making ice cream is taxed. (The grains in Ice cream salt are quite large).
Refer to the following table for more information on common taxable and non-taxable items.
Resources and Materials
Guided Practice
Print one copy per student.
Show the students how you read across the top to see which column the sale fits.
Go down that column and find the amount of sales.
Example write the following number on the board $31.70, have the students look across the columns, go down column #4 to the 7th box, the taxable amount is between $31.65 and $31.78, so the tax is $2.22.
Give the students several making sure everyone knows how to read the chart, have neighboring students help others, you help the ones who do not understand.
Have a contest and have students shout out the answers to random amounts.
After they understand this give them one over $100. Most of the students will be stumped, but usually one or two will understand to figure the tax on $100 and add the remaining tax over $100. Example $131.66 -find tax on $100 = $7.00 and find tax on $31.66= $2.22==total tax is $9.22.
Give them examples of other amounts over $100 or $200 etc.
Resources and Materials
Lecture
If you need to find the actual amount of tax, take the taxable amount and multiply it times the sales tax percent.
If the amount is $41.97, with a tax rate of 7%, multiply $41.97 times .07, the answer is $2.9379. Round up to the nearest 100th or $2.94.
If you want the amount with tax included (not separating the taxable amount) multiply the amount of the sale times 1.tax rate. Example, if using the 7% tax rate and the sale is $32.55, multiply $32.55 times 1.07. This will give the answer in one step. The one before the tax rate gives you the amount of the sale and the number after the point the tax rate. The answer is $32.55 X 1.07=$34.83 Do not use this method if you need to show the tax separately.
Allow students to use calculators and give them random amounts to calculate.
Lecture
If your business is only generating electronic sales transactions, the register will be programmed to figure the appropriate amount of tax on taxable goods. Taxable and non-taxable goods will have different keys on the register which will be preset with this information. The tax will be added after items are itemized on the receipt.
Assessment Type: Teacher-Made Test
Students will prepare several sales transactions calculating taxable amounts.
See attached taxable-non-taxable quiz.
Teacher can decide if class needs to use their worksheet for the quiz or if the questions are generic enough that students should be able to remember the information. My students do not use their notes or worksheet on the quiz.
Resources and Materials
Teach this information before teaching how to write sales transactions.
When they have completed both lessons, you will see which students understand this concept or need more one on one help.
Sales tax is figured on the selling price of the item and not the original price.