When buyers and sellers, who are each located in different political jurisdictions, engage in an economic transaction (the buying and selling of goods or services), the sales tax rate in each, the buyer’s and seller’s political jurisdiction, should be applied to the transaction. The buyer should be required to pay the sales tax rates for both jurisdictions in which the transaction is taking place.

For example, if someone in the city of Los Angeles, wants to buy a $20 book from a company in New York City, the buyer would be required to pay both the 9.75% sales tax rate of Los Angeles plus the 8.875% (for example) sales tax rate of New York City. In other words, the buyer would be required to pay a 18.625% sales tax on this purchase, bringing the cost of this transaction to $23.73. The seller would be responsible for distributing the collected taxes to the appropriate governments.

Some states charge ‘use’ taxes which are rarely collected because of the often self-reporting nature of the tax, lax enforcement and general ignorance about this tax. This proposal would standardize this tax principle for all transactions, wherever buyers and sellers reside.

Such a tax structure would tend to encourage more local economic transactions, thus favoring smaller, ‘mom-and-pop’ businesses as opposed to larger, more efficient business.

Sales Tax Apply to Portion Actually Paid

A sales tax should be applied to only the actual price paid for a product or service.  When there are special discounts, coupons, promotions, 2-for-1 offers, rebates, contracts, etc., the sales tax should only be based on the actual price that customer ended up paying. If a merchant gets reimbursed by a third party (like the manufacturer) for the value of the rebates or discount, then it should be the merchant that would be required to pay the sales tax on the portion for which they reimbursed the merchant.

For example, tax regulations concerning a cellphone (e.g., $600 full value) sold at a discounted price (e.g., $200) as part of a contract for one or two years, should only only require the customer to pay a sales tax based on the actual price the customer paid ($200) for the phone.