[erfderd]

We pay sales tax. What's so special about VAT vs. sales tax?

Unless you are arguing for a federal sales tax, which OK sure federal tax is great, except it doesn't pay for local services. Also, now you also have to argue about the regressive nature of sales tax in general.

[Ottolay]

A few differences:

- VAT is applied to business to business transactions. Sales taxes are just applied to consumer transactions.

- Sales taxes are applied to total amount of sales. The amount of VAT that the user pays is on the cost of the product, less any of the costs of materials used in the product that have already been taxed.

- Since value is not generally created in a second hand sale. (Unless the item is restored) VATs are usually not applied to used/second hand items. Sales taxes are.

[gumby]

> VAT is applied to business to business transactions. Sales taxes are just applied to consumer transactions.

This is not true. The final user pays the sales tax. So if a company buys a bolt and uses it to make its product: no tax. If they buy bolts and build shelves to hold inventory: pay the tax.

[chopin]

>If they buy bolts and build shelves to hold inventory: pay the tax.

At least for Germany even that is not true. As a business all VAT payments are refunded (Vorsteuerabzug).

[gumby]

I'm sorry I wasn't clear: I was clarifying that all end consumers pay sales tax in the USA (for transactions subject to sales tax; not every jurisdiction has them, or has them for all products).

However your comment is about VAT and the end result is also the same: the Vorsteuerabzug only applies to goods sold on to a subsequent buyer.

So the business pays VAT on everything it buys (that is subject to tax), but when it sells something it collects VAT on the sale. It can then deduct VAT paid on the inputs to that sale (i.e. the bolts in my example). This is central to the concept of VAT thus is basically how it works in every country with a VAT/GST.

This is explained in the law itself: https://www.gesetze-im-internet.de/ustg_1980/__15.html

[Symbiote]

I think the relevant difference is that VAT is paid even if you are in a different EU country.

I'm in Denmark, where the rate is 25%.

I pay 25% on something I order from a Danish online shop.

I pay 25% on something I order from a large German online shop, even though the VAT rate in Germany is lower.

I pay 19% (the German rate) on something I order from a small German shop, to reduce the administrative burden on that shop.

(In every case the advertised price includes VAT, although the middle case may use 19% until I input a delivery address, depending on how they guess my location.)

My understanding is that, in reality, people pay 0% in the USA if they order from a different state.

[sailfast]

I pay 0% VAT if I order from a country with VAT and ship to the US.

The key here is that when something is classified as "interstate commerce" different laws apply than if you're buying something in-state. Enforcement varies, and can be expensive, and the laws are catching up sometimes, and purposefully not present in others, depending on the state and their approach to interestate commerce.

As an American, I'm quite happy there is no Federal sales tax. There is no reason to capture value at that level and allocate at the Federal level. States already have these taxes, and are much better equipped (in terms of need / proximity - not in terms of functioning government at times) to allocate the money toward local services.

[couchand]

> My understanding is that, in reality, people pay 0% in the USA if they order from a different state.

That used to be the case, but online retailers now must collect sales tax for any state that demands it [0]. Many states have complicated rules on the matter, for details consult an attorney.

[0]: https://en.wikipedia.org/wiki/South_Dakota_v._Wayfair%2C_Inc.

[Retric]

Amazon started to collect sales tax a while ago. https://en.wikipedia.org/wiki/Amazon_tax#targetText=On%20Oct....

[robohoe]

You're supposed to report your online shopping when you do your taxes here every year.

[umanwizard]

Which no one does, so it’s irrelevant.

[jcranmer]

I do it (because I buy so little online). Also, Illinois (and maybe other states) published tables saying "if you don't want to calculate it, pay this amount instead."

Most states are now imposing sales tax on online retailers, so the point is pretty much moot now.

[umanwizard]

Okay, I stand corrected. Almost no one does.

[godshatter]

I'm one of those weirdos that does pay the use tax. I've been paying it since it became a thing. It continually amazes me that no one else apparently does.

[Shivetya]

One is embedded so you do not easily identify just how much all those free services cost you.

embedded taxes benefit the tax man and the easiest to make regressive thereby clawing back much of the money spent on services

[erfderd]

Ya, Canada used to have a VAT like tax, and then got rid of it in the 90s.

My question was honest though. Is there something special (good) about VAT vs. sales tax that I'm missing? Because the OP implied we don't pay sales tax in the US, which is (generally) not true.

[rayiner]

VAT is somewhat different in mechanics from sales tax, because it is collected along different points in the value chain. More important, VAT in Europe typically ranges from 20-25%, and has a broader tax base. In a typical European country, consumption taxes make up almost 30% of revenue, versus 17% in the US.

[erfderd]

So you're arguing for an increase of our sales tax. That's different than saying we don't pay sales tax!

Now, I don't disagree that a mechanism that tames American consumption would be good, and is also counter cycle to the economy.

But the question remains unanswered: How about the effect of sales tax on people and families at the margins [0]? 20-25% sales tax is a lot for them. A sales tax rebate check at the end of the year like Canada does? $70 hardly covers the bite of the sales tax!

[0] Including my in-laws, so I'll admit this is a bit personal.

[rayiner]

A VAT is different than a sales tax. And families at the margins would be better off with the increased social services we could provide with a European-style VAT, than the pennies we could collect by fighting to tax corporations more than they do in Europe.

It’s a middle class cop-out. The American middle class says they want to help those at the margins, but they don’t want to pay 25% VAT on MacBook Pros. They’re only in favor of increased welfare if Jeff Bezos is the one who pays for it.

[sgc]

There are more solutions than a high VAT, and since it is a regressive tax, it is actually a bad solution. The fact that some countries with high VAT use the funds better than other countries use their tax income does not make it a good tax. Of course corporate income tax can never solve all tax shortfalls, but it is still a reasonable piece of the puzzle.

[refurb]

Indeed. The US could very well fund a generous welfare state like Europe, but that won’t be done by increasing taxes on the rich, but rather on the middle class (like in Europe).