NewEnglandTravelPlanner.com Logo   Prices, Taxes & Tips in USA
When is the price not the full price? When you rent a room or buy a meal in the USA.
 










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In some popular tourist-destination countries, including France, the world's No. 1 tourist destination, prices are generally all-inclusive and thus transparent: if you see a price of 20 euros, you pay 20 euros and walk away.

In the USA, it's a lot more complicated. In many cases, the price you see is only part of what you will ultimately pay. Those charging the prices want it this way, even though it's bad for you, the traveler.

Tax is Added

The major factor obscuring what you ultimately pay is taxes. For many goods and services that travelers buy in the USA, taxes are generally added to the price, not included in it. This is true for lodgings, restaurant meals, some transportation, and for most general shopping (except groceries and some clothing).

Merchants want it this way. The reason they give is that they want their customers to see and realize what the merchant earns from the sale and, separately, what the government earns. This may be true, but it also obscures the full and true price to buyers when they are making the decision whether or not to buy. They only know the full price after they have made the decision to buy.

Lodging Taxes: the Highest

Lodging taxes are among the biggest—up to 13% or more. So if you see a hotel room priced at $200 per night, you may actually pay $226 ($200 + 13% room tax.)

New York City is a champ at this. If your hotel room is priced at $250, you will also pay New York State Sales Tax of 4%, New York City Sales Tax of 4.5%, a Transportation District Surcharge of 0.375%, a Hotel Room Occupancy Tax of $2 + 5.875%, and an Additional Daily Fee (?...!) of $1.50, for a total of $290.38, a total of 16% more than the "price" of the room.

It would be so much easier for the traveler if all of these extra taxes and fees were included in the original price advertised.

Restaurant Taxes: Most Tedious

You sit down in a restaurant, order several courses and drinks from the menu, and add up the prices from the menu: $50. When you leave the restaurant, you will have paid more like $64, that is, about 28% more than "the prices."

What? How?!

$50 for your dinner, plus the all-but-obligatory tip (see below), plus a meals tax of something like 6.25%, the rate in Massachusetts. (Rhode Island charges only 1%, but Maine charges 8%, Vermont and New Hampshire 9%.)

Tipping: Biggest Markup of All

Americans complain about costs, but they are perhaps the only people in the world who insist on paying more than the price for goods and services.

Americans give tips ("gratuities") to nearly everyone they encounter. Tips may range from 10% (universally looked upon as too little) to 15% (once standard, now looked upon as stingy) to 20% and even 25% (rapidly becoming the standard). Because tipping is so engrained in American commercial life, many service providers make it easy for people to give tips. Who doesn't like free money?

The Worst: Restaurant Tips

The most tedious of tipping situations is in restaurants. You have ordered from the menu, enjoyed your meal and good service, and you ask for your check (bill). The dishes and drinks you enjoyed are listed on the bill with prices, as is the substantial tax, which is not included in the prices.

Below the total of meal + taxes will be a line for you to write in the amount of any tip. So, replete with a good dinner and glass of wine, you are required to solve an arithmetic problem: you must calculate the amount you want to pay the waiters for doing their job.

If you calculate the amount on the meal + taxes total, you will be tipping the waiter for the tax the government levies as well as for the meal ordered.

The tip you pay does indeed go to the waiters. But wait! What about all the other restaurant staff? The host, the chef, the cooks, those who clear the tables, the business managers.... They work just as hard, but often receive none of the tip. Is this fair?

It gets worse. Waiters are supposed to declare the tips they receive as income for tax purposes. In some (many?) cases, tip income is received in the form of cash, and is therefore untraceable. Some waiters may not report it, and thus not pay their fair share of the national tax burden.

Why not include tax and service (tip) in prices and let customers know at the beginning the full price they will pay? Merchants can itemize tax and service on the bill if they wish you to see what goes where. Everyone on the staff in restaurants and other service businesses can share in the profits, and the government can levy taxes fairly on all workers.

A Broken System

"Plus tax and tip" is a broken system, but it's what you will encounter in the USA.

—by Tom Brosnahan


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