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The Daily

Study: Sales Tax Won't Depress Consumer Spending

Chris Gaetano
Published Date:
Apr 14, 2015
Stack of quartersA study recently published by the Journal of the American Taxation Association has found that sales taxes calculated as a percentage of the dollar amount and added on at the end have little to no effect in consumer spending, versus an excise tax that is embedded in the total price, according to According to Accounting Today, the experiment consisted of 208 participants who were asked to assume they were buying one of two refrigerators, one with a flat price of $740 including taxes, and another that was offered in one of five ways: 

1) for $740 all-inclusive; 2) for $699 with choice of color, plus 6% sales tax; 3) for $699 with choice of color, plus $42 sales tax; 4) for $699, tax included, with 6% mandatory surcharge for choice of color; or 5) for $699, tax included, with $42 mandatory surcharge for choice of color.

In all conditions, the total cost was the same, about $740. 

Nearly one third of subjects paid little to no attention to the effect that the percentage sales tax had on price, and even among those who did, only 25 percent correctly estimated the total cost. 

"[R]esults suggest that demand is higher when the add-on component is a sales tax as compared to an excise tax that is embedded into the total price. The effects on demand are even more pronounced and people recall lower prices when the add-on sales tax is presented as a percentage of the base price-as is generally the case in the U.S.-rather than as an additional currency component," said the abstract. 

The study also found that while consumers discount or ignore sales taxes when making a purchase, turning that sales tax into just a surcharged levied by the company did actually make people less likely to buy.