Understanding taxes when buying goods at a store
"Grocery food is not subject to sales tax in Maryland, but some food is taxed depending on category or preparation. So you must have had a combination of grocery and taxable foods. One of the cheaper items you purchased was subject to a whopping penny of sales tax. http://taxes.marylandtaxes.com/Individual_Taxes/Taxpayer_Assistance/Individual_Tax_FAQs/Use_Tax_FAQs/q4.shtml In general, food sales are subject to Maryland's 6 percent sales and   use tax unless a person operating a substantial grocery or market   business sells the food for consumption off the premises and the food   is not a taxable prepared food. A grocery or market business is   considered to be ""substantial"" if the sales of grocery or market food   items total at least 10 percent of all food sales." States have made sales tax more confusing by expanding some categories and shrinking or eliminating other categories. In days of old there were taxes on items, and specific taxes on other small categories such as fuel and cigarets . In many states there were taxes implemented state wide, and in other cases they only applied to a specific city or region. As time went on taxes could be raised to bring in more money for the state or local government, but these tax increase were seen as unfair to the poor. So now the states are modifying and tweaking the tax rates. Some items are tax free, some have a low tax, and some are at the full tax rate. This can get confusing because the type of store can also play a factor. A bag a chips from a grocery store can be treated  differently than a bag of chips from a hotdog stand. Some states have also added special taxes on snack foods. In general, purchases they want to encourage (staples from the grocery store) are tax free or low tax, items they don't want to encourage (snacks) are fully taxed. You can also be sure that they will treat luxury items as fully taxed. A new frontier of taxation are ones designed to tax people who don't live there. They have added taxes on restaurants and  hotels. Since they are paid by tourists, the people most likely to pay them don't have a voice in setting the rate.  States are now wanting to tax services as a way to make up shortfalls in taxing.  Don't expect consistency from state to state, or year to year.  Oh by the way that penny tax was for something that cost 17 cents or less, unless that item had a lower tax rate. The receipt should clearly identify the taxable items, and their tax level.
According to the New York State Department of Taxation and Finance, your service would appear to be exempt from taxes.  However, if you are charging for tangible items, those would incur a sales tax. You should total the items first, to get $3.00, then add the tax, then round up/down accordingly.  Your two examples above don't offer this option, even though your second example arrives at the same result.  In your first example, a number of items taxed one at a time might result in many .006 results which would round to .01. A long enough list of items would result in an error of many cents depending how many items there are. Totaling first then applying tax results in your saving .004 or losing .005 cents maximum due to rounding.  See A Guide to Sales and Use Tax which is a document put out by the Massachusetts Dept of Revenue. In the chart for tax, it shows that $1.09 is taxed at five cents, but at 5%, it would be 5.45. So, at least for this state, I believe I correctly stated the rounding process. The regulations you're talking about (TR 1.263) are going into effect starting tax year 2016, so for purchases you made last year they're (kindof...) irrelevant. Kindof, because the IRS promises to not audit those that qualify under the regulations even if they use it before it goes into effect, but it doesn't legally have to. Since the regulations are new, I suggest you talk to a licensed professional who'd explain them to you and interpret them with regards to your specific situation. From my brief read, you can expense under these rules things that you would otherwise capitalize, with the $500 limit to the invoice. Meaning, if you bought a computer paying $500, which you use 50% for your business - you can expense $250. The benefit, comparing to the Sec. 179, is that you're not limited to new items, nor are you limited to business revenue. Otherwise, it looks like the applicability is similar. As I said - talk  to a licensed tax adviser (EA/CPA licensed in your State), since these rules are new and untested, and you should probably have a professional provide guidance. I'm not such a professional. For case 1, there is no tax due as you sold the book for less than your cost basis. If you had sold for more than $100, then you would have had a profit. For case 2, that depends on the value of the gift card with respect to the value of your fare. Most likely that gift card is less than the cost of the fare. And in that case it would generally be treated as a reduction in the purchase price. The same way that rebates and cash back on credit card are treated. Note if for some reason a 1099 was generated that would change the situation and you would need to consult a tax professional. Since that would indicate that the other party to the transaction had a different view of the situation. "This question and your other one indicate you're a bit unclear on how capital gains taxes work, so here's the deal: you buy an asset (like shares of stock or a mutual fund).  You later sell it for more than you bought it for.  You pay taxes on your profit: the difference between what you sold it for and what you bought it for.  What matters is not the amount of money you ""withdraw"", but the prices at which assets are bought and sold. In fact, often you will be able to choose which individual shares you sell, which means you have some control over the tax you pay.  For a simple example, suppose you buy 10 shares of stock for $100 each in January (an investment of $1000); we'll call these the ""early"" shares.  The stock goes up to $200 in July, and you buy 10 more shares (investing an additional $2000); we'll call these the ""late"" shares.  Then the stock drops to $150.  Suppose you want $1500 in cash, so you are going to sell 10 shares. The 10 early shares you bought have increased in value, because you bought then for $100 but can now sell them for $150.  The 10 late shares have decreased in value, because you bought them for $200 but can now only sell them for $150.  If you choose to sell the early shares, you will have a capital gain of $500 ($1500 sale price minus $1000 purchase price), on which you may owe taxes.  If you sell the late shares, you will have a capital loss of $500 ($1500 sale price minus $2000 purchase price is -$500), which you can potentially use to reduce your taxes.  Or you could sell 5 of each and have no gain or loss (selling five early shares for $150 gives you a gain of $250, but selling five late shares for $150 gives you a loss of $250, and they cancel out). The point of all this is to say that the tax is not determined by the amount of cash you get, but by the difference between the sale price and the price you purchased for (known as the ""cost basis""), and this in turn depends on which specific assets you sell.  It is not enough to know the total amount you invested and the total gain.  You need to know the specific cost basis (i.e., original purchase price) of the specific shares you're selling.  (This is also the answer to your question about long-term versus short-term gains.  It doesn't matter how much money you make on the sale.  What matters is how long you hold the asset before selling it.) That said, many brokers will automatically sell your shares in a certain order unless you tell them otherwise (and some won't let you tell them otherwise).  Often they will use the ""first in, first out"" rule, which means they will always sell the earliest-purchased shares first. To finally get to your specific question about Betterment, they have a page here that says they use a different method.  Essentially, they try to sell your shares in a way that minimizes taxes.  They do this by first selling shares that have a loss, and only then selling shares that have a gain.  This basically means that if you want to cash out $X, and it is possible to do it in a way that incurs no tax liability, they will do that. What gets me very confused is if I continue to invest random amounts of money each month using Betterment, then I need to withdraw some cash, what are the tax implications.  As my long answer above should indicate, there is no simple answer to this.  The answer is ""it depends"".  It depends on exactly when you bought the shares, exactly how much you paid for them, exactly when and how much the price rose or fell, and exactly how much you sell them for.  Betterment is more or less saying ""Don't worry about any of this, trust us, we will handle everything so that your tax is minimized."" A final note: if you really do want to track the details of your cost basis, Betterment may not be for you, because it is an automated platform that may do a lot of individual trades that a human wouldn't do, and that can make tracking the cost basis yourself very difficult.  Almost the whole point of something like Betterment is that you are supposed to give them your money and forget about these details." But why can't two companies exchange goods directly without paying VAT? This would make the famous carousel fraud scam impossible and businesses won't have to deal with complicated refunds. Sales tax in the United States works as you describe.  Sales tax is charged only to end customers, not to businesses that themselves charge sales tax.  But this means that a criminal business can charge tax and just pocket it unless someone else reports it.  They can also evade income tax the same way.  Not to mention other issues like cross jurisdiction taxes (e.g. internet sales often evade sales tax).   The whole point of a Value Added Tax (VAT) is that they charge at each level.  This creates a system where each buyer reports the tax paid to the seller so as to be able to deduct it.  So the seller has to pay the VAT that they charged.  Or the tax authorities know and can revoke their VAT license.   If only the end user is charged tax, then fraud is easier than under a VAT.  So easy, I doubt they have a special name for it.  The fraudulent business just collects tax from end users and disappears.  Or simply fails to record those transactions.  You could call it missing transaction record fraud, but why bother?  It's just straight up tax fraud.  The complexity of the carousel fraud arises from the difficulty of evading a VAT. Well, I'm from the Netherlands, which is also kind of a 'nanny' state, usually supermarket goods are fairly cheap (bottle of 1,5L Coca Cola is $1,42, a 24-crate of beer is around $11). But gasoline ($2/L), diesel ($1.60/L) and tobacco ($6-8.50) are quite expensive.  Basically we have an extra tax on certain (unhealthy and environmentally harmful) goods so you get a basic consumer tax of 19% (soon to be 21%) + 15-250%. For example a pack of cigarettes of $6.50 is $1.71 without taxes right now.  But for some reason alcohol isn't taxed as heavily, where tobacco gets upwards of 250% extra tax alcohol only gets 5-15.5% extra taxes. "In a nutshell - Value Added Tax. America, as usual, discovers what others have known and used for years. The idea of not taxing income that's tied to it is ridiculous. If you're only taxing spending but not income, people will just take spending elsewhere (Canada, Mexico, further away), and the economy will go down the drain. That's similar to the way people avoid paying sales tax now, except that it will be in orders of magnitude. Why should a corporation by office supplies in the US, if it has a branch in China? Edit Also, Fair Tax doesn't take into account moving money overseas. I've mentioned living elsewhere down below, and that also got me thinking of how I personally would certainly gain from that ridiculous thing called ""Fair Tax"". Basically, that's exactly how the ""rich folks"", those who push for it, will gain from it. Being able to move money out of the US basically makes it a perfect tax shelter. You don't pay taxes on the income (that you have in the US), and you don't pay taxes on the spendings (that you have elsewhere, because in that country income is taxable so you only pay VAT or sales taxes). This means that all the wealthy people, while investing and gaining money from the American economy (stocks, property, etc), will actually not be spending it in the US. Thus, no taxes paid to the US, dollars flowing out. Perfect. Actually, I should be all for this stupid idea. Very fair to me, no need to pay any taxes at all, because food will probably be exempt anyway." They may stock items that frame the various price points. Of course they risk having the items go stale before they are sold. You also have situations where the store will advertise an item, but end up taking a loss on that sale because it will bring people in, and they will make other purchases. Determining what to stock, how to display it, and how to advertise it involves both math and psychology. "I'm being taxed at a 40% rate, then I can give $500,000 to charity, write it off, and save $200,000 on my taxes. That's a net loss of $300,000. I may have paid less taxes, but it cost me 300 grand. Your logic is correct. However, here's another way to think about it. Suppose you are being taxed at a 40% rate. You wish to purchase $500,000 worth of diamonds.  How much do you have to make in income to do so?  You need to make $833,333 in income, pay 40% of that ($333,333) in taxes, and then spend the $500,000 on the diamonds.  But to spend that $500,000 on a charitable donation, you only need to make an income of $500,000, taxed at a rate of 0%, because donations to charity count against your taxable income. Or, yet another way to think about it, is that if you make $833,333 in income, you can spend it on $500,000 worth of diamonds, or $833,333 worth of charitable contributions; effectively you get to purchase $333,333 worth of charitable contributions ""for free"" over the equivalent purchase that is not a charitable donation." How do you know you are playing their cost plus tax?   Retailers in the US currently only collect state sales tax on purchasers who are based in the same state they are in.  For example, our business is in NY so we charge NY state sales tax.  We do not charge sales tax for anyone living in any other state (or country). If your shipping address is in South America, the people you are buying from in the US should not be charging you any tax.  You may have to pay customs duties and fees, but these are not sales tax. Are you sure about this? I mean your premise. I thought tax was based on shipping address. I've made purchases, live, in NY, and had the choice to pay sales tax or to have the item shipped, in effect paying shipping, for real, instead of sales tax.  It appears that by buying a loaded cash card you'd accomplish your goal. I've seen such cards go fo $1.50, no fees other than that. To save the sales tax, or pay the tax of the state you're in, it may be worth it. But a NH billing address don't solve this, again, I believe tax is based on ship-to. Could you not just say that you had bought it when it was pennies on the dollar and made the millions that way? There isn't much of a transaction record, is there? I also just realized that I don't understand how taxes work in that situation. If you have a different currency from the U.S. Dollar, and it increases in value greatly, do you have to pay tax on that increased value relative to the U.S. dollar? They don't when it's minimal increases. "In most jurisdictions, both the goods (raw materials) and the service (class) are being ""sold"" to the customer, who is the end user and thus the sale is subject to sales tax. So, when your friend charges for the class, that $100 is subject to all applicable sales taxes for the jurisdiction and all parent jurisdictions (usually city, county and state). The teacher should not have to pay sales tax when they buy the flowers from the wholesaler; most jurisdictions charge sales tax on end-user purchases only. However, they are required to have some proof of sales tax exemption for the purchase, which normally comes part and parcel with the DBA or other business entity registration paperwork in most cities/states.  Wholesalers deal with non-end-user sales (exempt from sales tax) all the time, but your average Michael's or Hobby Lobby may not be able to deal with this and may have to charge your friend the sales tax at POS. Depending on the jurisdiction, if this happens, your friend may be able to reduce the amount the customer is paying that is subject to sales tax by the pre-tax value of the materials the customer has paid for, which your friend already paid the tax on." The reason is in your own question. The answer is simple. They use that code to tax the product otherwise it would just be out of pocket expenses.