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Tax-Free Price

Disciplines > Marketing > Pricing > Tax-Free Price

Description | Example | Discussion | See also

Description

In a sale, one way of displaying prices is to say that they are 'tax free', or 'we pay the tax'. This can be promoted as a 'tax-free sale'.

Display each price ticket with the original price crossed out and the sale price prefixed by 'Tax-free price:'.

The reality of this is that the actual price is an amount that reduces it to the price that would have been paid had tax not been added.

Example

An electrical goods store has a large 'Tax-Free Weekend' banner outside, proclaiming that customers will not be charged tax for this weekend. They then make a big show of deducting tax when selling goods.

An airport store declares that all prices are tax-free, even for travel within a taxation zone.

Discussion

Promoting the event as a 'tax-free sale' can in itself create intrigue that gains attention. This is something of a gimmick, but may appeal to customers who feel that taxation somehow government robbery. Buying at the 'tax free' price hence seems to be somehow cheating the government out of their tax and may hence give the customer additional pleasure on top of the benefit of a lower price.

Be careful with how the price is calculated. If tax is 10% and the original tax-included price is $12, then the tax-free price is calculated as ($12/(1+0.1) = $10.90, not ($12 - $12*0.1) = $10.80. This is because the 10% is applied to the pre-tax price (10% is the same as 0.1), not the $12, tax-included price.

See also

Percentage Discount