Taxes and Pricing

[Pita]

Hi all-

We are formulating a menu and pricing for a carry-out restaurant in the U.S. I lived in the Netherlands for a number of years before returning to America. Two of the things I liked about purchasing items in Holland was (1) everything was rounded up or down to the nearest 5 Euro cents which saved carrying around pocket full of those annoying little 1 and 2 Euro cent coins, and (2) a VAT was already incorporated into the price, so if something was listed as 4.95 Euro on the menu that is exactly what you paid, the taxes were not added on after-the-fact. If you were really interested in seeing what your taxes were you could look at the receipt provided which broke-out VAT versus the product price.

I'd like to do something similar with my menu pricing in the U.S. so that the price for each item on the menu reflects the core price plus local and state sales taxes already incorporated. For example, a soft drink would sell for $1.75, with the retail price being $1.58 and a 10% sales tax of $0.17 already folded into the price.

So if the customer orders a drink for $1.75 and a meal for 8.95, all with taxes already included in the price, their total bill will come to $10.70. If they pay with $15.00 the change back will be $4.30.

The advantage I see is that without having to deal with pennies and the add-on sales tax the actual cash exchange at the register would be faster and more efficient, and the till count at the end of the day would be more accurate.

It would require careful calculating of pricing in advance, but I think modern POS systems could be programmed to do this.

Any thoughts? Has anyone tried this before? Is it even legal to conduct business with consumers without adding on tax after the fact? Your thoughts are appreciated.

[tallen]

We do this with some of the merchandise we sell -- that $20.00 item is actually priced at $18.96 plus 1.04 in tax.... BUT our state law requires that the tax be listed separately, so the sign advertising that item looks like this:


LOGO HAT
$20
($18.96 + $1.04 tax)

Actually, in our POS system we carry the item pricing out to three decimal places because otherwise rounding errors creep in when a customer purchases multiple items (since the POS system calculates the tax on the total of the taxable items, rather than for each individual item).

[Freelancier]

Is it even legal to conduct business with consumers without adding on tax after the fact?Sales taxes are governed by your state, so you'll want to check with them about how you're supposed to present the sales tax portion of a sale. And you may want to check with an attorney about rounding, because you may have local laws against doing that.

[Evan]

As noted, this is a local issue in terms of whether you need to provide any additional disclosures. You may wish to clarify anyways as this isn't the standard and say "Prices include sales tax".

The European model works great, as I usually prefer not having to tip either except for going "above and beyond". Maybe one day the US will convert.

[jamesray50]

This sounds like it's more of a convenience for you than the consumer. It makes no difference to me if tax is included in the price, especially for small purchases. And I believe most people pay with something other than cash so the additional time it takes to dispense change would be minimal.

[Business Attorney]

As JoEllen said, I don't think that it will make much difference to most people unless your carryout restaurant is somewhere that people tend to pay in cash. What you propose is pretty common at food vendors selling at sporting events, music festivals, etc... around here but very rare in regular restaurants.

If other places are quoting prices that do not include sales tax, your prices may be at a psychological disadvantage. A $6.95 sandwich may seem cheaper than a $7.65 sandwich even if the after tax cost is the same.