Be Aware of When Sales Tax is Charged

In certain states a business must charge sales tax on the original price of an item regardless of any discounts or coupons.  Even in states where this is not required by law, some businesses will do this to take more money out of your pocket.  To see how this can add up, consider the following simple example.

Assume you are considering buying a new car for $20,000. The local sales tax rate is 10%.  Assume that you have two dealerships who are offering to take 15% off the price of the vehicle, bringing the price down to $17,000.  The first dealership calculates sales tax based off of the negotiated price of $17,000 bringing the total price of the vehicle to

However, in an attempt to make more profit, the second dealership calculates sales tax based off of the original price of the vehicle without disclosing this to the customer.    The total sales tax charged by the second dealership will be

Adding this to the negotiated price of $17,000 gives a final price of $19,000.  Clearly, the second dealership will get an extra $300 out of you even though it appears that both charge the same price, and are subject to the same sales tax rate.

Image source