Page 50 - Calculating Agriculture Cover 20191124 STUDENT - A

4-12 Percentages, Ratios and Relationships CH 4]

Example: Total Sales received including sales tax is $16,250. The sales tax rate is 9%.
Calculate Sales Tax collected.

Solution: Step 1) Total Sales ÷ (1 + Sales Tax Rate) = Total Retail Sales.
Step 2) Total Sales - Total Retails Sales = Sales Tax Collected.

Step 1) $16,250 ÷ (1 + 0.09) = Total Retail Sales
$16,250 ÷ 1.09 = $14,908.26

Step 2) $16,250.00 - $14,908.26 = $1,341.74 (Sales Tax Collected)

Luxury Tax:
A luxury tax is a tax on “luxury goods” which state legislatures decide are products not
considered as “essential.” A luxury tax is generally modeled after a sales tax and charged as
a percentage on all items of particular classes. This tax mainly affects and is directed at
wealthier individuals because of their wealth, a penalty for their success, who can afford the
items; it is also intended to discourage them from purchasing those “non-essential”,
“luxury” goods. People as they become more financially successful, wealthy, are more likely
to buy luxuries such as more expensive cars, jewelry, boats, airplanes, furs, etc. In some
instances the state legislature in designing their sales/luxury taxes apply the luxury tax
portion to purchases over a certain amount; for instance, some states charge luxury tax on
real estate, boats, automobiles, aircraft, jewelry, furs and precious metals or art.
Economically the demand for luxury items decreases as the tax and/or tax rate
increases; and in the general population the purchase of essential items also decreases as
taxes are applied. Increase the cost of fuel through taxation and people travel less;
sometimes this type of taxation is applied to force people onto public transportation, a
support for a public monopoly (i.e. city buses).
A luxury tax when enacted will be argued to increase the revenues of the tax coffers, but
a luxury tax can also reduce the amount of actual purchase (sales) taxes received. As an
example, in 1991 the United States Congress passed into law a luxury tax with the stated
goal to generate additional revenues to reduce the federal budget deficit. This tax was levied
on material goods such as new watches, expensive furs, boats, yachts, private jet planes,
jewelry and expensive cars. Congress enacted a 10 percent luxury “surcharge” tax on
purchase of NEW boats over $100,000, cars over $30,000, aircraft over $250,000, and furs
and jewelry over $10,000. The federal government estimated that it would raise $9 billion in
excess revenues over the following five-year period. Thinking themselves smarter than the
average American they did not anticipate purchasers avoiding the imposed luxury tax
completely, by purchasing used boats, aircraft, autos, etc., or purchasing new in a foreign
country and importing their purchase into the United States as personal property avoiding
the imposed ‘luxury’ tax.
The result was lowered overall tax revenues. Congress recognized that their luxury tax
put some U.S. boat builders out of business as they could not sell their new boats in the
United States; thus all of their workers were laid off as the American boat builder went out
of business. In August of 1993 Congress rescinded most of the luxury tax they thought
would increase the federal coffers. However, the luxury automobile tax remained in effect
until 2002. A luxury tax still applies in some states for products deemed unnecessary or
nonessential, a category in which non-luxury products often fall into.
Calculating a luxury tax is the same as calculating sales tax and the luxury tax is added
to the purchase price as is the sales tax.
Luxury tax may be calculated with the following equation:

Sales x Luxury Tax Rate = Luxury Tax

Example: Using the Luxury tax rate of 10%, Calculate the sales tax on a retail
purchase is $150,000.

Solution: Sales x Luxury Tax Rate = Luxury Tax
$150,000 x 10% =
$150,000 x 0.10 = $15,000 (Rounded to the nearest cent)

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