I Was Overcharged on Sales Tax - How to Stop Being Cheated - Easy Way to Mentally Calculate Sales Taxes

A quick and easy way to mentally figure sales tax on the spot and catch errors or fraud attempts.

A side note. Following the sales tax section is a serendipitous bonus section on how to quickly detect possible accounting or other numbers fraud. If you are a small business owner or work in an office environment, who knows when this skill might prove useful...

A long, long time ago...
A long, long time ago... | Source

Business or Store Overcharging on Sales Tax?

When it comes to sales taxes, fraud is not that rare of an occurrence. Many times, smaller stores do deliberately overcharge sales tax.

And employees in the larger stores have also been known to make price and thus sales tax mistakes as well.

Mentally calculating sales tax to prevent being overcharged is easy. It all has to do with rounding no degree in rocket surgery required. You are simply doing a quick approximation to prevent yourself from being a victim of sales tax fraud or simply to prevent possibly being overcharged.

Here are the four main premises:

  • Most sales taxes never exceed 10 percent, but most sales taxes are reasonably close to 10 percent.
  • Most thieves are greedy and will thus exceed the10 percent amount.
  • Even my dog can mentally calculate 10% of something.
  • Even my dog can mentally add 10% of something to something.

I Was Overcharged on Sales Tax

Easy way to figure sales tax.

You do not need this...

How to mentally calculate sales tax – Some examples...

The best way for this tutorial to demonstrate calculating sales taxes is by giving lots of examples. In reality, you already know how to do this. You just don't know you know yet. So let's begin. You walk up to the counter and engage in a purchase which sells for...

$49.99

  1. You round the price to $50.
  2. You calculate the 10% as $5.
  3. You add the $50 plus $5 to get $55.
  4. If the counter person wants more than $55, welcome to the world of sales tax fraud and overcharges.

$29.99

  1. You round it to $30.
  2. 10% is $3.
  3. Total is $33.
  4. If the final price is over $33, welcome to the world of sales tax fraud and overcharges.

$5.99

  1. Round to $6.
  2. 10% is $.60.
  3. Total is $6.60.
  4. Anything over $6.60, welcome to the world of sales tax fraud and overcharges.

$79.98

  1. $80.
  2. $8.
  3. $88.
  4. Over $88, cheated.

Important Note: Honest mistakes do happen. You will find out soon enough if the overcharge is deliberate or accidental...

Is It Sales Tax Fraud?

What to do when the person at the counter is overcharging you on the sales tax.

This depends on your mood, time constraints, the amount of money involved, the store and neighborhood, etc. Below are some typical scenarios and what one can do in each situation; followed by what you can also do after the fact.

You don't care about the amount involved:

  1. Say nothing.
  2. Pay it.
  3. Say nothing. Or say the routine "Thanks."
  4. [Optional] Locate and take one of the business cards offered on the counter.
  5. Leave.
  6. Once outside, note the date and time.
  7. Never go back.
  8. Maybe tell everyone you know.

You do care about the amount involved (option one):

  1. Don't pay it.
  2. Say nothing.
  3. [Optional] Locate and take one of the business cards offered on the counter.
  4. Leave. Be advised, however, the counter person (probably the owner) will immediately know you know he was trying to cheat you. And you took one of his cards... And sales tax fraud is a very serious offense...
  5. Once outside, note the date and time.
  6. Never go back.
  7. Maybe tell everyone you know.

You do care about the amount involved (option two):

  1. Politely point out the total is incorrect and explain why you think so.

If the counter-person reviews and corrects the error,

  1. Pay it.
  2. Call it a day.
  3. Maybe or maybe not give the place another chance in the future.

If the counter-person denies, disputes, or otherwise argues with your statement,

  1. [Optional] Locate and take one of the business cards offered on the counter.
  2. Leave.
  3. Once outside, note the date and time.
  4. Never go back.
  5. Warn all your friends.

How to Report Companies Over Charging Sales Tax

Reporting Sales Tax Fraud

Reward for reporting sales tax fraud?

I Was Overcharged on Sales Tax
I Was Overcharged on Sales Tax | Source

Reporting sales tax fraud activity is not difficult. Here's what you can do...

Not only are you doing a good deed for society, you might even make some money in the process.

Find your state's website dealing with all things sales tax.

  1. Find where to report what you experienced. As an example, in California the Board of Equalization would be where to go. California does not pay a reward at this time. However, reporting the fraud is still a good idea; wouldn't you like the thief (employee or owner) removed, so you can have an honest, local place to shop at? Reports can be made anonymously and still be investigated.
  2. For other states, determine if you might get a reward.
  3. Tell them your experience in detail, including date and time. Give them all the information on the business card. If you don't have the store's business card, that is ok; just be sure the store name and address you are reporting is correct. And don't worry; they're not going to just take your word for it. They will probably send the equivalent of a couple "mystery shoppers" to the store to confirm. When they have absolutely verified and proven it is not an isolated incident; only then will the hammer fall on the deserving thief.
  4. There are also several good suggestions in the Comments Section at the end of the page.

More than likely the store location is leased. With any luck, the thieving employee or owner will soon be gone; hopefully replaced with a new, honest employee or business.

[End of article.]

Bonus Section

How to Quickly Find Possible Accounting Fraud - What Is Forensic Accounting and Benford's Law

This is an introduction to Benford's Law and how it is used in forensic accounting.

What is forensic accounting. And what is and about Benford's Law.
What is forensic accounting. And what is and about Benford's Law.

Forensic accounting is the analysis of an entity's accounting practices. More specifically, it is an attempt to determine the legitimacy of the numbers being stated. In other words, have the books been cooked?

This page has to do with one quick detection method often used to determine the likelihood of a set of accounting numbers being suspect.

  • It is perfect for the small business owner.
  • It is perfect for anyone working in any sort of office environment.

Along with many others, the IRS frequently uses this method as an initial detection procedure.

Correct Distribution Curve of First-Digit Numbers

Digit
~ Frequency
1
30%
2
17.5%
3
12.5%
4
9.5%
5
8%
6
7%
7
6%
8
5%
9
4.5%

How to Quickly Detect Possible Accounting Fraud Using Benford's Law

It all has to do with a physical and mathematical observation known as Benford's law, also known as the first-digit law. Turns out in the real world, digits are not uniformly distributed in many types of datasets. Some numbers show up in the first position much more frequently than others. So, if one comes across certain datasets where the numbers are uniformly distributed, then there is a significant probability something is amiss.

The digit "1" shows up much more frequently in the first position than the other digits for many types of data. This has been theoretically, mathematically, and empirically proven. The table at right shows the normal distribution curve for the digits 1-9. One would think each digit, along with the "0", would show up 10% of the time. But such is not the case. The digit "1" does indeed show up in the first position 30% of the time, instead of the expected 10%. This page will not attempt to explain why this is so; the laws of physics and mathematics can be strange at times. All law enforcement agencies use Benford's law as a possible flag if/when appropriate. All forensic accountants use it. Benford's law has been used as evidence in criminal cases at the local, state, and federal levels.

A Caveat

Benford's law does not work when the data involved has been "contaminated" by artificial restrictions, thus skewing the normal randomness of the data. This mainly occurs when data has been truncated due to the setting of minimums and/or maximums for logistics purposes; or when certain ranges of numbers are deliberately excluded for parametric reasons. The general rule of thumb is orders-of-magnitude must have free reign for the first-digit law to be relevant.

What is and about Benford's Law. And what is and about forensic accounting.
What is and about Benford's Law. And what is and about forensic accounting. | Source

Accounting Fraud Discovery or Prevention Using Benford's Law

Whether the data being checked is in a spreadsheet or database format, one does not have to be a rocket surgeon to: select the appropriate column; textually sort it; and quickly see how the first-digit numbers are distributed. As an example, if one is checking a dataset of 300 accounting entries, and the sorted column isn't showing approximately the first 90 entries as starting with the number "1", then it's time to delve into those entries further.

When artificial data truncation or exclusions does not come into play, this will work for...

  • Accounts payable
  • Disbursements
  • Accounts receivable
  • Deposits
  • Sales
  • Expense reports
  • Inventory (with some caveats)

It should be noted when a set of data does obey Benford's law, is not necessarily proof as to the data's validity. After all, Benford's law is not exactly a state secret. Benford's law is only useful when it is noticed the distribution of first-digit numbers does not obey said law. When the appropriate distribution does not occur, then the numbers need to be examined to find out why.

Benford's Law Forensic Accounting Examples - Note: The smaller the dataset, the more leeway given.

This column of textually sorted expense account figures does NOT obey Benford's first-digit law and would need to be checked into further.
This column of textually sorted expense account figures DOES fall within the parameters of Benford's first-digit law.
110.47
110.47
21.43
14.91
28.96
151.12
42.41
19.55
51.65
21.43
55.77
244.19
58.91
28.96
64.82
32.00
71.44
35.66
72.31
42.41
8.33
5.50
93.01
58.91
96.09
71.44
98.61
88.72

Benford's law does not apply to just the first digit.

When the forensic accountants and other pros use Benford's law for fraud detection, they don't apply it to just the first digit. There are known distribution curves for the other digit positions as well. There are also distribution curves for various combinations of digits.

And the pros and forensic accountants don't only use the above-described, manual sort technique. Computer program algorithms have been written and are routinely used. The IRS is a good example. Certain tax forms (or certain taxpayer categories for that matter) are automatically run through the algorithm upon receipt of the filing. If the algorithm waves a red flag, then a human is notified.

May all your accounting experiences be positive ones.

More by this Author


Comments 4 comments

Spitfire07 profile image

Spitfire07 4 years ago from Calgary

The sales tax in Ontario, Canada (and other parts of Canada) is higher than 10% usually between 13-15%.

I use the same method you outlined above except, when considering 15% I break it down into 10% and 5% such that if it were a $50 purchase, simply slide the decimal point one place to left to get $5 and then add another half of that to get $50 + $5 + $2.5 = $57.5.

Great straight forward post. Thanks.


rlaha profile image

rlaha 4 years ago from Spartanburg, SC

Great hub. A few other tips you can tell people is that you can report the business to the owner of the business. If the business owner is the one with the bad morals, then you can also report them to the local business licensing office. Chances are they will not be renewed for their license if they keep having shady business practices. As a last resort, you can also report the business to the Better Business Bureau either by phone or online.


DzyMsLizzy profile image

DzyMsLizzy 4 years ago from Oakley, CA

The sales tax rate in our county is 8.25% in most areas, with just 2 cities having a local added tax, bringing their total tax to 9.25% in one case, and 8.75% in the other.

Math in my head is not a skill of mine...so if i were to use the 10% estimate, and the amount charged came out right for 10%, I'd know I was being cheated on that basis--but, without a calculator handy, I'd not be able to figure by how much.

I would most definitely report them, but I would also make a bit of a scene, to let the other customers in line know what was going on....

On a somewhat related note, it cracks me up that some stores will offer a "no sales tax" weekend....and the customers will shop in droves...and the store gets less of an increase in business from a 20% off sale. An acquaintance of ours works at a store that does both promotions, and he shakes his head, too. "No sales tax" is far less of a discount than 20%!!! There must be a misperception that somehow, they are 'sticking it to the government.' However, the tax must still be paid..the store is just 'eating it,' and passing that savings to the customers....Why am I one of only a very few who seem to know this?

Voted up, useful, interesting and shared.


Millionaire Tips profile image

Millionaire Tips 4 years ago from USA

I have never calculated the sales tax because it did not occur to me that people would try to cheat me in this way. I'll be paying more attention in the future.

When there is a discrepancy that I notice at the cash register, I will point it out to the cashier. I like to think that most people are good and simply made a mistake, and will be happy to correct it. Even if it was on purpose, I would like to think they would pretend it was a mistake and will remedy the issue for me.

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