Simple Saving: Single Article Sales Tax

It has recently been brought to my attention that sales tax (at least in the glorious state of Tennessee) is often calculated incorrectly. This primarily true for single item purchases of $1,600 or greater. Now, I know that these occasions are few and far between. However, when dealing with large single item purchases, a 2.25% discrepancy starts to translate to a noticeable amount of money.

For all intents and purposes, I will use Tennessee as an example. If I know our government like I think I do...I suspect that many other areas may have a similar structure. Again, this scenario is concerning the purchase of a single article over $1,600. The State of Tennessee describes a "single article" as:

"as any unit, exclusive of any accessories, extra parts, etc., and that which is capable of being sold as an independent unit, or as a common unit of measure, a regular billing, or other obligation. Examples are motor vehicles, boats, televisions, large machinery and equipment, etc., or anything that is pre-assembled and self-contained from the manufacturer."

Translation: Blah Blah Blah Blah Blah...One Item. The caveat to this, concerning motor vehicles, deals with accessories:

"FOR MOTOR VEHICLE, BOAT, AND FACTORY MANUFACTURED HOME DEALERS ONLY: Dealer installed accessories for motor vehicles, boats, and factory manufactured homes are specifically named in the law as part of the single article and will not be taxed separately on the local option tax. However, dealer installed accessories on other single articles, such as machinery and equipment, airplanes, etc., will not be considered as part of the single article and will be taxed separately on the local option tax. A boat trailer is considered to be a separate single article.

Extended warranties, repair, and maintenance agreements on tangible personal property are taxable services, not a part of the single article of tangible personal property and will be taxed
separately."

We are all accustomed to a flat 9.25% tax rate. However the proper structure, when dealing with large single article purchases is a graduated scale:

• $0 - $1,600 taxed at 9.25% (7% state tax / 2.25% Knox County local tax)
• $1,600.01 - $3,200 taxed at 9.75% (7% state tax / 2.75% state single article)
• $3,200.01+ taxed at 7.00% (just state tax)

In my experience, the sellers of motor vehicles are ( generally) practicing proper taxation. Because a vehicle transaction is so large, there are hundreds of dollars associated with the discrepancy. For example, the purchase of a $20,000 car should have this tax structure:

• $0 - $1,600 taxed at 9.25% (7% state tax / 2.25% local tax) = $148
  
• $1,600.01 - $3,200 taxed at 9.75% (7% state tax / 2.75% state single article) = $156
  
• $3,200.01 - $20,000 taxed at 7.00% (just state tax) = $1,176
  
• Total Taxation = $1,480

However, if this car purchase was just taxed incorrectly at a flat 9.25%, like most retail systems are programed, then the total taxation would be $1,850. That is a $370 difference. Now, $370 isn't a huge sum of money, compared to the $20k you would be dropping on the car. But, the difference turns into straight profit for the seller, because they don't pay that money into the government. They are not taxed for it.

For this reason, vehicle dealerships are monitored much more closely. However, the selling of TVs, computers, etc. are often overlooked. These items are often mis-taxed. So next time you are dropping all those hard earned Benjamin's on a new Mac or the mother of all flat screens, put that cell phone calculator to work. Make sure the seller knows the tax code.

Stimulate This...

So, here is one for you. I got my stimulus check yesterday in the mail. Whoopee (sarcasm). Don't get me wrong. I'll take it. No doubt. But it is soooo frustrating. Why? Three main reasons:

1. First and foremost, the government, in reality, isn't giving me anything. It was my money to begin with. They are just giving it back. It's a big publicity stunt. There is no reason to believe that this is anything more than a temporary solution to a long-term problem, if it is a solution at all. Its like a tiny financial bandaid - like the kind you get with a shot. And that is being blissfully hopeful.

2. My check really caught me be surprise. Not because I had forgotten about it, but because, according to the IRS, it was supposed to be a direct deposit.

3. Also according to the IRS, my money was over a month overdue. Maybe I should bill the IRS for the back interest, like they likely would if I paid my taxes a month late. Right?

Oh yeah, did I mention...IT IS MY MONEY TO BEGIN WITH.

So, moral of the story - as always, I am astonished by the efficiency of government.

Simple Cents University: An "Un-traditional" Approach to Debt

Here are two "un-traditional" reasons to consider before taking on debt.

Countless arguements can be made for the advantages of debt/leverage/etc. while sitting behind a financial calculator in a world where $%^* doesn't happen. I think there are two simple things to remember when considering debt-

1. There is more to life than money.
2. There is more to money than numbers.

Financial calculators cannot account for stress and quality of life. True, debt can maximize profitability and extend margins, but it can also magnify losses and mistakes. When an investor takes a more conservative approach to investing (cashflowing investments, rather than leveraging them) they "incur" a higher quality of life. There is less stress and volatility in the process, which to me, is worthy trade for the possible decrease in returns. Money has a lot of power that can be used for us, when we stay ahead of the wave. I feel keeping away from debt allows the individual (over time) to be more and more able to harness the potenial energy of money, rather than fighting against it. If it takes 5 years to turn your boat around (get out of debt), so be it. But then you spend the rest of your life rowing with the current, rather than against it.