A friend of mine who asked to go nameless decided not long ago that he wanted a new bathroom sink. After searching for a bargain online and in person, he reluctantly picked a model by Toto. With new fixtures, the Toto total (say that five times) came to $1,000, including sales tax.
By the time the job was finished, however, his outlay had climbed to $3,700 as one thing led to another, about which more below. But the only tax he paid was for the sink, even though his plumbers and glazier were legitimate businesses that presented him with official receipts.
It can come as no surprise to you that contractors often offer their customers the opportunity to save money on the sales tax by paying cash. Yet I was surprised to learn that established companies–not just independent contractors such as your super–engaged in the risky practice of defrauding the government. (However, I do recall that a respected business such as Saks or Tiffany was snared for doing so decades ago, and prosecutions are pursued with some regularity now.)
For both parties, it’s win-win. But if you include financially strapped governments, it’s win-win-lose. I was unable to find the estimated total of funds lost, but I’ll wager that the money could pay for a significant amount of special education, transit maintenance and legislator perks (as if Albany needs even more of them).
According to New York City’s government, examples of sales tax evasion abound, including the following one:
A New York City retailer offers to let a customer pay cash and provide a false out-of-state address to avoid paying the City’s sales tax 8.75 percent. He offers to ship an empty box to the customer’s mother in another state as a precaution, so it looks as it the purchase is going out of state.
Now back to my friend’s situation. Aside from the $1,000 he laid out for the sink, he paid $1,175 to have his tub and tiles reglazed and a grab bar installed. (How could he live with tiling that looked shabby next to the sink?)
Because of the usual unforeseen complications, plumbers set him back a whopping $1,400. In addition, he tipped the plumbers and glaziers $85 plus $40 to his building super, who hauled away the old sink.
Given the total he spent, my friend saved 8.75 percent of $1,400 plus $1,175, or $148.06.
For argument’s sake, assume that’s the only tax-free work he has done this year. Then, assume that, say, only half of the city’s residents (call it 4 million) achieve the same personal benefit annually. By my calculation, residents are saving and the city is losing a wildly approximate estimate of $600 million a year in revenue.
I don’t know about you, but I could live pretty comfortably on that amount of money.
As for my friend, who resides in a co-op on Manhattan’s Upper West Side, the original octagonal floor tiles in his pre-war apartment look kind of scruffy to him. Maybe he’ll get a deal for them too!
Licensed Associate Real Estate Broker
Senior Vice President
Charles Rutenberg Realty
127 E. 56th Street
New York, NY 10022