Tax Bracket or Straightjacket?

Mark Wilhelm - The Recovering Accountant

Over the course of the past few months, I’ve examined a variety of anomalies, curiosities and complexities that plague the sales and use tax system in the United States.  However, none of the issues that I have reviewed (Rocky Top Tennessee Tiered Tax; Massachusetts, Sales Tax, Caps and Thresholds; What Do Roller Coasters Have to do With Sales Tax?) frustrate me more than the bracket tax concept.

The bracket tax system is used by both Maryland and Florida, and dictates that, rather than performing a simple tax calculation of taxable amount of a purchase multiplied by the applicable sales tax rate, the calculation of sales tax is based upon a table containing the ranges of the taxable amount of the sale, cross-referenced with the associated sales tax due for that range (or bracket).  Both Florida and Maryland provide an extensive assortment of sales tax cards for merchants to manually look up the appropriate sales tax amount for every transaction.

The system dates back to a time when state of the art cash registers were electro-mechanical machines that did an adequate job of tabulating sales transactions using simple addition and subtraction routines, but could not perform multiplication tasks.  Accordingly, merchants were provided sales tax tables identifying a dizzying amount of possible sales amount permutations with the corresponding sales tax value pre-calculated. The cashier merely:

  1. Arrived at the pre-tax sales total
  2. Grabbed the trusty tax chart
  3. Found that amount’s bracket on the chart
  4. Obtained the required sales tax
  5. Punched the sales tax amount into the cash register
  6. Pressed the tax key on the machine to arrive at the total amount due from the customer.

A fantastic solution… 30 years ago.

Florida even provides its own tip on its department of revenue website:

Florida uses a “bracket system” for calculating sales tax when the transaction falls between two whole dollar amounts.  Multiply the whole dollar amount by the tax rate (6 percent plus the county surtax rate) and use the bracket system to figure the tax on the amount less than a dollar.

I guess math is too hard when those pesky decimals come into play.

To make matters worse, the state of Maryland isn’t even consistent with the application of its bracket system for all of its statutory sales taxes.  On July 1, 2011, Maryland imposed a 9 percent sales and use tax rate on the sale of alcoholic beverages, but didn’t force the use of its antiquated bracket system for calculation of the tax.

Welcome to the 21st century

With the exposure sales tax has been given recently concerning internet sales, one would think that each and every taxing jurisdiction would do everything within its power to simplify the calculation and collection of sales tax for the merchant. Even the simplest cash register available to merchants is equipped to perform a simple multiplication task, and round the amount for inclusion in the checkout process.  Forcing an arcane bracket system on the merchant provides no value to the taxing authority, and complicates what should be a simple calculation.  Yet, the bureaucrats apparently sit around scratching their heads wondering why they fail to get cooperation from businesses in collecting sales tax from the customer.

Sales tax automation is a simple answer to addressing this type of sales tax complexity. However, even sales tax automation systems must build in specialized logic to accommodate the bracket tax requirement.

Straightjacket?

I included straightjacket in the title of my blog for two reasons.  First, the bracket tax system quite simply binds the arms of the merchant when they are simply attempting to provide a sales tax amount to its customer, especially when this activity provides no added value to its business.  Second, the more I allow myself to ruminate on how this system adds unneeded complexity to sales tax calculation (and part of my job is to deliver automated sales tax solutions that simplify the process); the more likely I am to need a straightjacket to keep my fellow employees safe from my ranting when the topic of conversation turns to bracket tax!

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About Mark Wilhelm

Mark Wilhelm, the self proclaimed “Recovering Accountant” began his career as an internal auditor at a private regional company in the Midwest. From there, Mark’s career included a variety of accounting roles, including general ledger, multi-currency financial consolidation & reporting, and eventually comptroller. He branched out into consulting, starting his own practice, and provided Enterprise Resource Planning (ERP) implementation services, training, and consulting for businesses. Recognized for his implacable ability to get the job done, he was requested to join another consulting firm and help build their support center. In 2005, Mark joined Avalara and currently serves as Director of Product Integration. Mark loves dogs and is considering starting an Accountants Anonymous program...
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