Why is sales tax so wacky? - Wacky Tax Wednesday

Why is sales tax so wacky? - Wacky Tax Wednesday

If you follow U.S. sales and use tax at all, you probably realize that it can be wonderfully wacky. The question is, “Why?”

The curiously complex nature of sales tax is largely attributable to two things: 1) the distinction between essential and luxury items and 2) state sovereignty.

State sovereignty

Working under the rubric of the United States Constitution and the federal government, state legislators create their own laws and policies. Enter sales tax.

Florida’s sales and use tax laws are different from California’s; Washington’s are different from New York’s. Every state imposes its own exceptions, exemptions, policies, rates, regulations, and rules, and that’s as it should be. Unfortunately, this creates a compliance nightmare for anyone doing business in more than one state (and in states that permit home rule, policy differences start at the local level).

Essential vs luxury items

Sales tax wackiness also stems from a distinction between essential and luxury items. Beginning in the 1930s when many states first imposed sales taxes, lawmakers taxed items considered a luxury but not items considered essential. The country was still recovering from the Great Depression, and states figured that if a person had enough money to dine out, that person could afford to pay a little more for the meal in the form of sales tax. Exceptions were often granted for food purchased for home consumption — essential stuff. The essential/non-essential distinction has grown over the years, making sales tax more taxing.

The upshot

45 states (plus the District of Columbia) with sales tax have some wonderfully wacky sales tax laws.

20 Crazy sales tax facts

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