How Would You Handle a 50 Percent Sales Tax Surprise?

It’s a story, of a lovely lady…

A true story that happened to a friend of mine today.

Her cell phone won’t charge after getting an operating system upgrade.

So she went to the cell phone store to buy a new battery.

What’s the problem?

“My battery died after a system upgrade.  Do you have a battery for my phone in stock?”

“Oh, you’re phone won’t charge?  Let me see.”  They check the account.  “Oh, it looks like you qualify for an upgraded phone.”

Are you listening to me?  Did I ask for an upgrade???

“I don’t want a new phone.  I just want  a new battery.”

“Well it looks like your phone isn’t charging.  When I plug it in the charging light doesn’t come on.  See? A replacement battery won’t help.”

“So how much is a new phone?”

“I can get you the phone and a charger and case – if you want the same phone as you have now, for $100 plus tax.”

Okay, I can live with that.

Okay.  So that’s not the $30 battery she was expecting.  But she needs her phone (can’t live without it).  And $100 isn’t too bad.  Or so it seems…

And that would be wrong.  You haven’t heard the rest of the story.

Now here’s where the wheels come off.

So we heard the clerk casually say $100 plus tax, right?

And how much does sales tax normally run?

8%, 10%, 12% at the top end, depending on what county/state you’re in, right?

What if I said it was 50% tax?

What if the sales girl said the total comes to $150 after tax?

50% Tax?  What?!?!?

Now I seem to remember basic algebra should solve this problem.

$100X = $150 (where X is the tax rate)

X=150/100 = 15/10 = 3/2 = 1.5 = 150%

150% – 100% base price = 50% tax rate!

Now what *&#$n world do we live in where we pay 50% sales tax?

Is this a police state?  Did I just drop into an alternate universe?  Is this the Twilight Zone?

When the price is not the price…

No, this is just the government taking their share.

So how did it come to 50% tax when the tax rate is closer to 10%?

Back to our sales clerk.

Before I get to that answer.  Imagine I’m the sales girl (I know I probably can’t pull that off lol).

Wouldn’t you think I’d know that $50 on a $100 phone is a pretty big number?  And that the customer might feel a little duped?

That’s what I’d think anyway.  I’m sure it has come up before for a sales clerk who’s been there a year.

Don’t make them guess.  This kind of surprise is NOT good.

And that’s the problem.  You don’t want your customers to have sticker shock.  You need to prepare them properly.

You need to let them know on your website’s “Thank You” page what to do next to get their free download gift.

You need to let the person purchasing a landscaping service that they’ll be billed to their Visa card each month on the 12th of the month and that in April and September they’ll get billed for additional services (i.e. fertilizing the lawn).

So what happened with this transaction?

She said $100 plus tax.

Just because the purchase price is discounted doesn’t mean everything is.

But the tax was based on the RETAIL value of the phone and accessories.

And that $100 phone was really a $350 phone in the eyes of the state government.  

So when you add the phone and accessories RETAIL value (not the super discounted price that gets you to opt in to their continuity plan), that 10% turns into $50 (or 50% on the original $100 quoted phone).

Now I know as an adult you should read the fine print (on page 23 in 3 point font).  But who does that these days?

Now was the tax accurate?  Yes

Did the clerk hide anything? No

So what’s the problem?

The problem is when you pull out your credit card to pay expecting to pay around $110 and the clerk says $150 you’re more than a little shocked.

And when the clerk says they told you that tax was extra.  You’re like, duh!  But there’s a big difference between expectations and reality.

Set clear expectations

And as a business owner, that is a very important job.  To make sure you set clear expectations.  In the internet world that reduces refunds and spam claims.

At a restaurant it helps the diner know who is using a coupon, that the tip should be based on the full meal price, not the discounted price (so the server doesn’t get screwed).

In both the online and offline world that means the difference between a happy customer who keeps coming back and buying from you…and someone who buys ones, resents it, tells his friends and coworker what a raw deal that was, and not going back.

The business loses the most valuable thing a business can benefit from…a return customer.

So don’t do this.  Set clear expectations.  Let them know what will happen next.  Make sure there aren’t bad surprises. Because your customer WILL blame you.  And they won’t return.  And they may tell others who also will not return.

Don’t let that happen to you.