Path: utzoo!attcan!utgpu!jarvis.csri.toronto.edu!csri.toronto.edu!mart From: mart@csri.toronto.edu (Mart Molle) Newsgroups: can.general Subject: Re: That F'n Fed. Sales Tax is Gonna *HURT*!! Summary: FST is not on resale houses, and it doesn't compound Message-ID: <1989Aug14.185256.1260@jarvis.csri.toronto.edu> Date: 14 Aug 89 22:52:56 GMT References: <1989Aug13.161201.7535@tmsoft.uucp> Distribution: can Organization: University of Toronto, CSRI Lines: 74 In article kim@watsup.waterloo.edu (T. Kim Nguyen) writes: >Is the FST applicable ONLY to new houses??? I was under the >impression that ALL house sales were subject to the new tax. It is ONLY on new houses. Resale houses are exempt. (I've seen this stated explicitly in the Toronto Star several times over the last week.) >Another point I'd like to make concerning the FST: it will add up to >a lot more than 9%, since the tax is applied at ALL levels -- so if >you buy a new house, the builder pays FST on the materials, FST on >various other services he purchases, and *THEN* you pay another round >of FST on the total price. This (I believe) will apply to all goods >which go through distributors, wholesalers, retailers, etc. No, you've got it all wrong. At each step in the chain, say: manufacturer -> distributor -> retailer -> retail customer there is indeed a 9% tax being paided by the purchaser and collected by the seller, but the seller GETS TO KEEP THE AMOUNT HE PAID WHEN HE BOUGHT IT, and pays only the INCREMENTAL AMOUNT (on the value added) to the government. For example, suppose a widget costs $100 to manufacture, and each of the distributor and the retailer set their selling prices by adding a 50% markup to THEIR COST. manufacturer's price to distributor: $100.00 9% tax collected: $9.00 Ottawa collects tax on initial value: $9.00 distributor's price to retailer: $150.00 9% tax collected: $13.50 distributor keeps tax he's already paid: -9.00 Ottawa collects tax on value added: $4.50 retailer's price to consumer: $225.00 9% tax collected $20.25 retailer keeps tax he's already paid: -13.50 Ottawa collects tax on value added: $6.75 So, in effect, the consumer pays $225.00+20.25 and Ottawa collects a total of $20.25, just as if it were done in the obvious way by simply adding a 9% retail sales tax. The only real difference is that Ottawa gets part of its money early, if the goods set in a warehouse for two years while the distributor tries to figure out what to do with an overabundance of out of season left-handed widgets. BTW, I saw a fascinating article that predicted an unusual side effect to this incremental tax collection a few weeks ago. The Star was attributing to someone at Revenue Canada (or perhaps some independent consultant -- it's been too long...) the claim that it would go a long way to allowing the Feds to catch people trying to cheat on paying taxes by bartering, etc. The basic idea is that it makes it much less attractive for your dentist to go to the widget distributor offering to clean his teeth for free in exchange for a free widget, so the dentist can avoid paying sales tax on the widget and income tax on the cleaning money used to pay for the widget. This is because each widget now comes equipped with an audit trail, from which Feds can see that the distributor bought a widget but didn't resell it to a retailer. Also, the distributor has ALREADY paid Ottawa the 9% tax on his $100.00 cost, and he won't get it back from the retailer unless he sells the widget "through the proper channels". Thus, bartering the widget for a dental cleaning means the Feds get to keep $9.00 of HIS money that he would normally get back from the retailer. (So, in effect, the Feds are getting their 9% of the barter deal, I guess! :-) The article went on to give an estimate in the tens or hundreds of millions of dollars as the amount of tax cheating they expected to be able to catch in this way. Mart L. Molle Computer Systems Research Institute University of Toronto (416)978-4928 mart@csri.toronto.edu