Now You See It…

by Tom Yamachika, President

Now you see it, now you don’t.

There’s no magic involved here, only taxes.  Taxes you can see, and taxes you can’t.

The taxes you can see are things like income tax, which gets taken out of your paycheck, and general excise tax, which you can see on your receipt whenever you go to the store.

There are also lots of taxes you don’t see.

One tax that lawmakers love playing around with is called the barrel tax.  It gets paid whenever fossil fuels are imported into the State.  We previously wrote about its history here.  The tax is paid at the wholesale level, so retail customers almost never see a line item on their bills for this tax.  Yet it does get baked into the retail prices — not only at the gas station, but also for electricity (because a lot of our electricity is generated by burning bunker fuel), charges for transportation (think trucking and delivery services, because the service providers use vehicles), and charges for all kinds of tangible goods (they need to get to the stores somehow).

For the past several years, there have been proposals in the legislature to convert the barrel tax into a carbon tax.  Here’s some further information on that proposal.  The carbon tax proposals we have been seeing would be much more expensive than the barrel tax it would replace.

Our GET, furthermore, is not completely visible.  There are some very large hidden components.  For example, when a retail store buys its inventory, it pays a supplier.  If the supplier is local, another GET is imposed, this time at 0.5%.  If the supplier is out of state, then the same 0.5% tax gets imposed as Use Tax, which the retailer has to pay.  These taxes get paid by or are passed on to the retailer, and the retailer adds that in to the price of the goods. 

Another hidden component is the tax on business-to-business charges.  If the retailer doesn’t own the land on which its store sits, the retailer needs to pay rent.  GET is charged on the rent, and it’s not at the wholesale rate but at the full 4.5% rate.  (And if the retailer does own the land, it needs to pay county real property tax, probably at a commercial rate that is a lot more expensive than the residential rate real property tax that most of us are used to.)  Does the retailer need help from a CPA firm to keep its books?  GET at 4.5% applies to those charges as well.  Does the retailer need power to keep the lights on, run the registers, keep the frozen food frozen?  GET isn’t imposed on that — instead, a more expensive tax called the Public Service Company Tax kicks in.  The PSC tax has a state component of 4%, similar to the GET, but also there is a county component of between 1.885% and 4.2% depending on how profitable the public utility is.

The state, furthermore, has no monopoly on business-to-business taxation.  Our federal government contributes to higher prices by imposing taxes of its own, such as fuel taxes, transportation excise taxes, communications taxes, environmental taxes, and manufacturer’s taxes on a number of different articles.

So, what’s the bottom line here?  Open up your wallet.

Do you see money inside?

Now you see it, now you don’t.