An order of mine:
Subtotal $28.34
Shipping & Handling $12.33
Tax $5.73
Grand Total $40.67
"Well, I guess that way you get taxed coming and going!"
Right. That is the purpose of a VAT. It was invented in socialist countries about 40 years ago. It was thought that if you just used a Sales Tax, everyone below the final seller was escaping paying any of a tax. Since in socialism they would not want that to happen, they invented the concept of value added.
A simple example cause to carry the concept thru all transactions it gets very, very complicated.
Assume a VAT rate of 10 %. A wholesaler of seeds sells a pack of seeds to Seedaholic for 2 $. She pays a VAT on 2 $ of 20 cents. She sells the seeds to someone for 3 $. Her "value added" is $1. Her VAT amount is 10 cents. Buried in the overall transaction is 30 cents of VAT. Now the end result would be the same with a Sales Tax with a rate of 10 %. But that would be levied only on Seedaholic - not anyone back in the chain. Not fair at all under socialism.
Many VATs were proposed to replace Sales taxes and/or Income taxes. As it turned out, many countries retained them. There are now countries that have all 3. And that is why many argue against replacing the US income tax with a flat national sales tax. Many including ME know that in the end we would have both.
In Canada they use a form of VAT called a Goods & Services Tax. When I worked in Canada as a consultant, it took me 3 times as long to file my Canadian G & S tax forms than it did my US Corporate Income Tax forms. It was a freaking nightmare as I was paying (among many, many other taxes) City of Edmonton Alberta G & S tax, Alberta G & S tax, Canada national G & S Tax.
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