#TaxNerd: Tax Day in the Supreme Court

Today may be the most perfect #TaxNerd day possible. Not only are federal tax returns due, but the Supreme Court is actually hearing a tax case today! (For lots of great Surly coverage of Wayfair, check out Adam’s posts.)

In honor of today, I decided to wear my Illinois sales tax cufflinks. And how did I get Illinois sales tax cufflinks? Well, I was looking on Etsy for tax-related cufflinks, as one does, and came across them.

Buying them made me curious, though: what exactly are sales tax tokens?

They come from back when the sales tax was young. Because we don’t have coins smaller than one cent, the sales tax on inexpensive items could be really small. For instance, if I bought a 10-cent piece of candy, and there was a 2% sales tax, what was going to happen? I couldn’t pay 0.2 cents in sales tax; either the merchant would have to overcharge me by 0.8 cents (meaning I was paying 500% of the sales tax I owed) or the merchant could not charge me the sales tax. But if the merchant made a total of $10 of sales of candy that day, and waived the sales tax for each sale, the merchant would be on the hook for $2 of sales tax she didn’t collect.

Enter sales tax tokens. They were worth a fraction of a cent (mine appear to have been worth 0.15 cents). If you bought the 10-cent candy, the merchant would charge you 1 cent in sales tax, and give you change of 0.8 cents in sales tax tokens. The next time you bought a 10-cent candy, instead of paying sales tax, you would give the merchant 0.2 cents worth of sales tax tokens. There’s potentially a time-value-of-money loss there, but basically, that gets the sales tax right, and makes sales tax viable for low-cost purchases. [Sources I used to learn about sales tax tokens are here and here.]

So with that, I hope you can join me in celebrating both #TaxDay and #WayfairDay, in whatever way you choose to celebrate them!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s