Michael Roberts Meeting

After you make a purchase, do you notice the sales tax printed on the receipt? What would happen if that amount increased?  Based upon the newest research from Dr. Michael Roberts, Director of the Accounting Program at the University of Colorado, in collaboration with Dr. Cynthia Blanthorne of the University of Rhode Island, you might not notice.  What’s more, if you did, you probably would adapt to the increased tax fairly quickly.

Dr. Roberts’ research, featured in Accounting Today, found that close to one-third of consumers pay little or no attention to percentage sales taxes in making spending decisions. Based upon a survey 208 participants who were randomly recruited from a courthouse jury pool in a state with a 7 percent sales tax; they were asked to assume that a new job enabled them to afford a refrigerator to replace a malfunctioning one at home and that they could choose between two units that were only slightly different, Refrigerator A being a bit larger but Refrigerator B having an extra year’s warranty. The latter, serving as an experimental control, was offered to all participants at a price of $740 including taxes and choice of color. Refrigerator A was offered to subgroups in one of five ways: 1) for $740 all-inclusive; 2) for $699 with choice of color, plus 6% sales tax; 3) for $699 with choice of color, plus $42 sales tax; 4) for $699, tax included, with 6% mandatory surcharge for choice of color; or 5) for $699, tax included, with $42 mandatory surcharge for choice of color.

What they ultimately found was one third of the participants did not pay attention to the increase in sales tax.  Consumers also had a significantly greater preference for Refrigerator A at $699 plus 6 percent sales tax than for the $740 all-inclusive refrigerator.

The implications, as mentioned by the news outlet CFO, are that this new information could contribute to the national sales tax debate by favoring an increase in sales taxes.  Many who oppose this notion state that hiring the national sales tax would deter consumers from spending.  This study actually refutes that claim—if other, more visible taxes are simultaneously reduced.

The Wall Street Journal recently reported on the conversations happening in Washington on an overhaul on the nation’s income tax system towards a more consumption-based model (a model frequently used across the globe).  As the researchers state, looking forward, these research findings are relevant to discussions about adding a national consumption tax such as a sales tax or value-added tax (VAT).

To read the full study follow this Link.

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