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Is it legal to tax each item separately?

I visited a Pizza place in Detroit, MI on 2/14/2016 Valentines Day. The waitress taxed each item on my bill separately: for example, she taxed me for the pizza, then taxed me for the pop, and added a gratuity.

Trish
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Cheryl
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    Sales tax is a percentage of the item price. If I have one item costing $10 and one costing $5, and sales tax is 10%, then taxing separately means I pay $1 tax on the $10 item and $0.50 on the $5 item, for a total of $1.50 in tax. If tax is instead paid on the total, my total was $15.00 and I pay $1.50 on it. The tax bill is the same whether it's charged per item or on the whole bill, so I can't see why it's relevant which it is. – cpast Feb 17 '16 at 02:54
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    @cpast except for rounding errors but these ably amount to a few cents – Dale M Feb 17 '16 at 02:56
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    I don't know about Michigan but in my state we also have different rates of tax for different things. For instance we are not taxed on basic food and clothing but not on luxuries. I have no idea how that determination is made for the edge cases, but I often see per-item tax because not everything is taxed. Could be something similar. – Ukko Feb 17 '16 at 21:08
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    @DaleM you are correct. Michigan sales tax is 6%. On any price ending in .95, rounding is 3/10 cent in the restaurant's favor. If all prices end in .95, and if the restaurant serves a table ordering 5 items, the total ends in .75, and the rounding nets the restaurant an extra half a cent. They would therefore come out one cent ahead by taxing items individually ($0.003 * 5 = $0.015) vs. per check ($0.005). – phoog Mar 18 '16 at 22:59

4 Answers4

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Forget whether or not it's legal; it's mathematically stupid. The store owner gets no advantage by taxing you on each individual item vs. just taxing the bill as a whole because of the distributive property of multiplication.

A(x) + B(x) + C(x)
is exactly the same as
(A + B + C)x

You can try this on a calculator and you'll get the exact same answer each time.

The only possible benefit to the pizza place by doing it that way would be the cumulative effect of rounding. But even if they were being that shady, it only amounts to a few pennies per customer. Not exactly a profitable criminal enterprise.

More than likely what happened is the waitress didn't quite know how to ring you up so she made corrections to the ticket trying to fix something.

Wes Sayeed
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Agree with Judge Moody. Even more generally, my understanding is that the law treats sales tax as a matter between the business and the tax man. The business doesn't have to tell the customer anything about it unless they want to. That they do usually advertise how much of the sale price is going towards tax maybe can be thought of us a kind of marketing gimmick to make "their price" seem lower or more competitive. "Our price is $29.95, really it is! Never mind that we are collecting $50 from you."

feetwet makes a good point that the seller is not always required to collect and remit sales tax; in some cases, the buyer is responsible for paying use tax on items purchased. However, in this case, I would not expect the seller to be responsible for listing the sales/use tax on a receipt at all, let alone subject to any specific regulations. The above paragraph applies to the case where the seller is obligated to collect and remit applicable tax.

Patrick87
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    I don't think this is correct. In every state I've reviewed with a "sales tax" the tax is actually a "sales and use tax," and the underlying law puts the onus on the purchaser to comply with the tax. Then, just to make things easier, the state orders every business over which it has authority to collect and remit the tax on behalf of the purchaser. But note that the state cannot do so for out-of-state purchasers. It has no taxing authority over them. So if you have your Detroit pizza delivered to Windsor the restaurant need not collect or remit tax. – feetwet Jun 17 '16 at 02:30
  • @feetwet Good point. However, even (especially?) in the case when the seller isn't responsible for remitting sales/use tax, the seller wouldn't be obligated to list tax on a receipt, would they? I'll add this consideration to the answer. – Patrick87 Jun 17 '16 at 13:46
  • @Patrick87 in addition to being a "marketing gimmick" (and it probably has an effect on this), there is the fact that many establishments are franchises whose advertising is done by a central source. In the US at least, there are 3 separate governments who can levy taxes, so even in a small geographical area, the post-tax price can differ. – sharur Sep 15 '16 at 23:32
  • Many, if not all, U.S. states require that the sales tax be disclosed separately when no special exception (e.g. festivals where people buy tickets in advance and redeem them for food at stands) applies. Businesses don't oppose this requirement because it makes their goods seem cheaper. – ohwilleke Nov 14 '16 at 23:55
  • @ohwilleke that information is absent from the discussion at http://travel.stackexchange.com/q/21469/19400. Would you care to add it? – phoog Jan 13 '17 at 22:28
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Yes, as far as I know it is OK to do that. I have purchased items that said tax was included in the price. I would have checked with the manager though out of curiosity.

Judge Moody
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The items might be under different tax schemes

In , we have two kinds of VAT: 19% and 7%. 19% is for most goods while 7% is for food and books. However, Alcohol is not food and thus requires 19% taxation.

As a result, if you have a meal in the restaurant and a wine or beer with it, you will have listed VAT twice: once for the 19% taxation goods and once for the 7% taxation goods. This is even required.

Trish
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