How Much Tax We Pay on Items We Buy

How much tax do you pay on items you buy? Take, for example, a loaf of bread. The most common response is to reply the sales tax rate in your local area—this can range from 3% to 12% depending on where you buy it. So a $2.00 loaf of bread has tax of 12 cents if you have a 6% sales tax rate.

However, this only captures a portion of tax on the item—a calculation that is so complex that even accountants cannot accurately figure the amount. Let’s take the loaf of bread example again—the manufacturer of the bread pays payroll taxes on its employees. They pay property tax on their building. They pay Federal, State and Local taxes on their telephone service (and maybe other excise or FCC charges). They pay tax on their internet. They pay sales tax on all their asset purchases, and probably pay a Personal Property Tax on their assets each year (the average of this is 1% on the usable value of all their assets—desks, shelves, paper, pencils, signs, manufacturing equipment, etc.). This is just a small list of taxes that the manufacturer pays—there are others.

But we must also consider the farmer who grows the wheat, as well as the farmer who grows the sugar, and all the other farmers who grow ingredients for the bread—they pay many of these same taxes (perhaps at different rates). Then the farmers ship their goods to the manufacturer, and the truckers pay taxes on their trucks (sales tax at purchase, annual property tax when they register it, and heavy highway use tax on how far they drive). They also pay taxes on their wages, on the fuel they use, on the repairs of their trucks, etc. And again there are the truckers who pay all those same taxes when the finished bread is shipped to the grocery store. And last, the store pays all these taxes on its building, personal property assets (shelves, grocery carts, cash registers), and on its employees, phone, internet, etc. in order to sell it to you. And then finally you pay sales tax on the amount it cost you to buy the bread.

It is such a long list and is not an all-inclusive list of all taxes. Consider also if any of those items were grown out of the country and had to be shipped here, there would be taxes from the foreign country, tax the shipping companies pay, import fees and tariffs, etc.

It is easy to see why the calculation on a $2.00 loaf of bread is so complex and results in much more tax than you are aware of.