Tuesday, 23 April 2013

Tea and taxes - a UK expat navigating US taxes (part 1)

I promise this isn't a political rant, it's an expat's observation of the differences between sales tax in the UK and the USA!

Last week was tax day in the USA, and I was going to spend a bit of time talking about my various experiences with the US tax system, until the tragedy in Boston took place and I held off. Most people know that Boston plays a key part in the USA's uneasy relationship with taxation. I had wondered at the time if there was a correlation between tax day and what happened in Boston. I don't actually think that was the reason behind what happened there last week, but I hope you understand my caution nonetheless.

Coming from the UK, tea and taxes are two things with which I'm very familiar. And I'm not talking about US history. Sales tax in the UK (known as Value Added Tax or VAT) is currently an eye-watering 20%, a little fact I often use to stun Americans when they ask me about life in the UK.

To Americans, this is unheard of.

But Brits don't always notice it. Yes, things are expensive, but the minimum wage is higher, the pound is stronger (but only just, I admit), and usually sales tax is included in the sticker price. I call it a WYSIWYG shopping experience: You know straight away how much a basketful of goods will cost when you reach the checkout, and it's only after you leave and glance at your receipt you realize just how much of your bill went to the taxman.

Dry Cleaning in Philly
And this is one of my pet peeves about sales tax in the USA: It's so unpredictable! For a start, sales tax varies from state to state, and sometimes from city to city. I live in the suburbs of Philadelphia, where sales tax is a reasonable 6%. But once I'm inside the city it's 8%.

City-dwellers like to head out of the city to the King of Prussia mall (the biggest on the east coast and a veritable shopping behemoth) to save a few dollars. Some New York state residents also find their way down to suburban PA, because even though NY State sales tax is only 4% it varies widely, reaching almost 9% in NYC. As I've said before, PA's neighbor Delaware has no sales tax, and many Keystone staters are only too happy to hop over the border for liquor, or a car (or both).

That's not all. My biggest peeve is that sales tax is added on top of the sticker price, at the register. If budgeting is key, then you need to be clued into the tax rates for what you're buying, where you are, and how to work out percentages mentally while cruising the shopping aisles. You think that CD is going to cost you 9.99? Wrong, it's 10.59. And two of them? Yeah that's 21.18, thanks. No wonder Americans use their cards for shopping, carrying exact change is a nightmare.

At first I have to confess that I wondered if this was a conspiracy to make American shoppers acutely aware of taxation. After that spat with the Brits over tea (and to be fair, the tax rate on tea was allegedly a ridiculous 119%), the USA has never been an overt fan of heavy taxation. The weird totals at the register are a constant reminder.

But actually, it is probably just easier for nation-wide companies to allow stores in states to change the tax rates on their registers rather than printing out different prices for every city, county and state, and not the conspiracy theory this awkward Brit has concocted!

Incidentally, in the UK there's no sales tax on teabags, but there is if you buy a cup of hot tea. So maybe both systems are just as confusing!

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