Evading Tax—Legally

Posted on | July 31, 2009 | No Comments

It’s not just a coincidence that it is called the Tax Code; embedded in federal and state regulation books that have killed more trees than any wildfire are thousands of complicated, far-reaching, and sometimes sneaky ways in which to tax your money. There’s the cigarette tax, gasoline tax, hotel occupancy tax, airplane ticket tax among hundreds and thousands of others.

In scope and size, the sales tax stands just below the two big ones, (federal and state income tax). Most people don’t pay much attention to the sales tax; afterall, your tax bill for everyday items like clothes and toiletries doesn’t seem to really amount to much. Or does it?

In March I kept all of my receipts and added up the various taxes paid. The types of sales tax I encountered were the gasoline tax ($0.20 per gallon), the hotel occupancy tax, and the regular sales tax. Still, I managed to make it out of the month alive with a sales tax bill of only $31.90. I say ‘only’ because according to the Tax Foundation, in 2006 Texans paid annually an average of $1,475 per capita in sales tax (check out the per capita data from any state here). That is approximately $123 per month coming out of money that has all ready been taxed once by the federal government. While Texans are lucky in that they pay no state income tax, Houston in particular has a rather large sales tax of 8.25% (there is no tax on groceries, prescriptions, and a few other necessities). This adds extra dollars here and there onto your everyday purchases that can really add up.

Even with my number being less than a third of what others pay, my sales tax bill is still costing me about $384 per year. That is simply too much. There are alternatives; I could refuse to pay the sales tax. When I make a purchase I can hand over just enough cash to cover the principal amount of the purchase…but we all know how that would end up, and paying the court fees, bail bond, and subsequent penalties would certainly be more than the original $0.38 on my green tea frappucino.  Or I could barter my way through life, but I think most of the people willing to barter to the extent necessary in order to be self-sufficient and independent from stores all together have died out in the late 1700s. What about couponing my way out of sales tax? Bingo.

In the lovely state of Texas, it turns out that when you use retail discounts or manufacturer’s coupons, sales tax is calculated on the purchase price after the discounts have been taken (click here to see which way your state taxes when coupons are used). This is important; in most states around the US, you are taxed according to the purchase price before the discounts have been taken. So using coupons has a compounded effect; it not only lowers your overall purchase amount, but it also lowers your overall sales tax bill for the year. To give you an example, if I had not used discounts in the month of March, then my total tax bill would have been $131.00, much higher than the $31.90 I managed.

To take this a step further, couponing can offset your sales tax bill for the year. By using coupons in each purchase you make, you can keep extra money in your pocket that equals the amount of sales tax that you pay each year. For me, this would be using approximately $32 in coupons each month. How much is your sales tax bill each month?

Finally, other great ways to evade sales tax are buying items off of ebay, craigslist, bartering (as much as you can) with neighbors, relatives, and friends, and making do with the things you all ready have in your household.

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