Path: utzoo!attcan!utgpu!jarvis.csri.toronto.edu!csri.toronto.edu!mart
From: mart@csri.toronto.edu (Mart Molle)
Newsgroups: can.general
Subject: Re: That F'n Fed. Sales Tax is Gonna *HURT*!!
Summary: FST is not on resale houses, and it doesn't compound
Message-ID: <1989Aug14.185256.1260@jarvis.csri.toronto.edu>
Date: 14 Aug 89 22:52:56 GMT
References:  <1989Aug13.161201.7535@tmsoft.uucp> 
Distribution: can
Organization: University of Toronto, CSRI
Lines: 74

In article  kim@watsup.waterloo.edu (T. Kim Nguyen) writes:

>Is the FST applicable ONLY to new houses???  I was under the
>impression that ALL house sales were subject to the new tax.

It is ONLY on new houses.  Resale houses are exempt.
(I've seen this stated explicitly in the Toronto Star
several times over the last week.)

>Another point I'd like to make concerning the FST:  it will add up to
>a lot more than 9%, since the tax is applied at ALL levels -- so if
>you buy a new house, the builder pays FST on the materials, FST on
>various other services he purchases, and *THEN* you pay another round
>of FST on the total price.  This (I believe) will apply to all goods
>which go through distributors, wholesalers, retailers, etc.

No, you've got it all wrong.  At each step in the chain, say:

	manufacturer ->  distributor -> retailer -> retail customer 

there is indeed a 9% tax being paided by the purchaser and collected
by the seller, but the seller GETS TO KEEP THE AMOUNT HE PAID WHEN HE
BOUGHT IT, and pays only the INCREMENTAL AMOUNT (on the value added) to
the government.  For example, suppose a widget costs $100 to manufacture,
and each of the distributor and the retailer set their selling prices
by adding a 50% markup to THEIR COST.

	manufacturer's price to distributor:	$100.00
	9% tax collected:				 $9.00
	Ottawa collects tax on initial value:			 $9.00
	
	distributor's price to retailer:	$150.00
	9% tax collected:				$13.50
	distributor keeps tax he's already paid:	 -9.00
	Ottawa collects tax on value added:			 $4.50

	retailer's price to consumer:		$225.00
	9% tax collected				$20.25
	retailer keeps tax he's already paid:		-13.50
	Ottawa collects tax on value added:			 $6.75

So, in effect, the consumer pays $225.00+20.25 and Ottawa collects a total
of $20.25, just as if it were done in the obvious way by simply adding a
9% retail sales tax.  The only real difference is that Ottawa gets part of
its money early, if the goods set in a warehouse for two years while the
distributor tries to figure out what to do with an overabundance of out of
season left-handed widgets.

BTW, I saw a fascinating article that predicted an unusual side effect to
this incremental tax collection a few weeks ago.  The Star was attributing
to someone at Revenue Canada (or perhaps some independent consultant -- it's
been too long...) the claim that it would go a long way to allowing the
Feds to catch people trying to cheat on paying taxes by bartering, etc.

The basic idea is that it makes it much less attractive for your dentist
to go to the widget distributor offering to clean his teeth for free in
exchange for a free widget, so the dentist can avoid paying sales tax on
the widget and income tax on the cleaning money used to pay for the widget.
This is because each widget now comes equipped with an audit trail, from
which Feds can see that the distributor bought a widget but didn't resell
it to a retailer.  Also, the distributor has ALREADY paid Ottawa the 9%
tax on his $100.00 cost, and he won't get it back from the retailer unless
he sells the widget "through the proper channels".  Thus, bartering the
widget for a dental cleaning means the Feds get to keep $9.00 of HIS money
that he would normally get back from the retailer. (So, in effect, the Feds
are getting their 9% of the barter deal, I guess! :-)  The article went on
to give an estimate in the tens or hundreds of millions of dollars as
the amount of tax cheating they expected to be able to catch in this way.

Mart L. Molle
Computer Systems Research Institute
University of Toronto
(416)978-4928
mart@csri.toronto.edu