Death and (Sales) Taxes

October 13, 2016

Whether you relish or dread it, your weekly grocery shopping trip is one of the single biggest line items in your budget. For all of the fuss over saving a few cents here or there with coupons, a huge part of the price tag of your trip to the store is at the bottom of your receipt: sales tax. But where does the money go and should you be conscious of it?

Sales Tax 101
Sales taxes are one of the simpler taxes to figure out: add up the cost of your total bill, subtract any discounts, and multiply it by the total sales tax rate. Of course, there are some exceptions. When it comes to your grocery bill, like all but 12 states, many counties in Colorado exempt food for “home consumption” from being subject to state sales tax. That means most of your grocery bill is tax-free. However, those that do their grocery shopping at big box stores might be surprised to learn that a lot of what gets purchased during that regular trip to the store is actually taxed at the full rate. For the items that do get taxed, you’ll pay Colorado state sales tax of 2.9%  plus any county, city, and special district taxes and fees that may apply. There are calculators available to help you determine the amount sales tax charged by local governments.

Keep in mind if you’re looking to save a few bucks by buying big-ticket items in a county that has a lower tax rate, most car dealerships, jewelry stores, and other retailers who sell high-price goods ask for your ZIP code so they can calculate the correct amount of sales tax you should pay.

WTF is a PIF?
On top of taxes, other types of fees can pop up on the bottom of your receipt. The most common type of fee you’ll encounter is a Public Improvement Fee (PIF). A PIF is charged by private businesses to pay for things on private property that taxes would normally pay for on public property—think public works services like snow removal, lighting, sewer, etc. The fees can also pay for beatification projects like flowers, paint, and art. Although it’s privately collected, there is public accountability since a special district with an elected board oversees the finances.

For example, the Gardens on Havana in Aurora replaced the Denver suburb’s old Buckingham Square mall with an outdoor mixed-use commercial and residential space. Consumers who patronize the businesses in the development pay a 0.50% PIF on all sales.  So a family that spends $600 per month there will end up paying about $3 more shopping there than somewhere else, but they also benefit from not slipping on ice or having their car get stuck in the snow during winter.

Strategic Geography
Considering the differences are pretty minimal, would it be worth it to go out of your way to save a buck or two? Not really. If you’re outside the metro area, unless you live on or near the border of two counties or cities, chances are you’ll need to travel too far to make it worth your while. And if you live in the Denver Metro area, by shopping elsewhere to save on sales tax you may scrape a tiny amount off the total tab at the expense of vital services for your community (to pay for ones you don’t even benefit from). Here’s an example:

Let’s say you live in Denver, where total sales tax is 7.65% (made up of Colorado state sales tax of 2.9%, Denver sales tax of 3.65%, Regional Transportation District tax of 1%, and Scientific and Cultural Facilities District tax of 0.1%) but you go grocery shopping at the Target store on Colorado Blvd. and Alameda Ave. That Target happens to be in Glendale, not Denver, and the total sales tax rate is 8%. That’s not a lot, but if you’re a Denver resident, you just shorted yourself to benefit a neighboring town (though you do theoretically benefit from it if you visit or happen to drive through and don’t want to get nailed by a pot hole).

If you happen to live in a less populated county, then you already know the folks in Denver, Colorado Springs, and other big cities have it a little better than you in terms of buying food. To city dwellers, it might surprise you to learn many counties in Colorado don’t exempt food from sales tax. Just keep that in mind the next time you complain about taxes.

More than a number
The IRS may well be the least popular institution in the country, but the quote by former United States Supreme Court Justice Wendell Holmes, Jr. engraved into the IRS headquarters in Washington rings true: “Taxes are what we pay for a civilized society.” That’s especially true for sales and other transactional taxes because the things so often seen as necessary even by the strongest tax policy critics (i.e., roads and public safety) are paid for, especially at the local level, with money collected at the point of sale. To use Aurora again as an example, in the city’s budget 41% of their 2016 expenditures go to the general fund, which is used to pay for things like police and fire protection and roadway maintenance among other items, and 13.5% of the total $350 million budget is from sales taxes. Pennies on the dollar really add up!

Do you ever try to be strategic about sales tax? Are you loyal to your own locale? Leave your thoughts in the comments!