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Comment by matsemann | Hacker News Reader

> The other has refused to accept them, instead charging a fixed percentage service fee.

Why not just show the real price in the menu? I feel offended when I've gotten shitty service and have to pay a "service fee". I also hate when my tip is what's paying the wages. Just set the price higher to cover the wages!

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There was a planet money podcast recently which discussed the effects of including a tax in the price or adding it at the register. Even though the net cost was exactly the same, including the tax in the sticker price resulted in 8% less consumption. While, as consumers, we'd probably prefer products to include the all-up cost in the price tag, from the seller's perspective, it's still in their interest to add it at the register.

I live in a country where the tax is always included in the price, and tipping is not seen as mandatory. So the price on the tag is what you pay. So I may be a bit biased in my "hate" for how it's in some countries, because I'm always taken by surprise at the register.

Yeah, I'm not saying that I like it, just that I understand the motivations involved. On a purely rational basis, it should make no difference (as the end-price ends up the same), so sellers should opt for customer preference, but sadly, we are not fully rational creatures.

And on that note I think part of the difference in reaction is down to expectation. Americans don't like being "surprised" at the register either, but in the case of sales tax and tipping there is no surprise; it is assumed that will happen and factored accordingly. But if you surprise me with a $.99 dessert on my bill that I didn't actually ask for, you can bet your ass I'd raise a problem about that at the register.

It does make a tangible difference in the cash economy though. When the price tag includes tax, the prices are generally set to easy multiples of the currency. Fewer coins to cart around and manage (and no give/take a penny trays). I found it amusing in the US when I went to McDonalds and ordered three things from the 'dollar menu'... and was charged $3.24. I also found it odd that a few Americans, despite living in this system their whole lives, had trouble in predicting their costs at the register.

Here in Australia there's a 10% sales tax, included in the original price. For anything above a few dollars, most prices are whole dollar amounts, and the vendor sets aside 1/11th of the price for the sales tax. What you actually pay is easy to manage and predict, though you get a receipt specifying the tax with odd numbers (due to the 11ths). Go into a supermarket and buy a carton of Foo for $2.69? It's $2.69 at the register.

My gut tells me that this is why Americans are so much more vocal about tax - sales tax is a stone in their shoe. It's addition at the register makes things unpredictable (not to mention any sale that crosses a border somewhere). Here it's streamlined away, and there's no cognitive weight borne by the consumer at all.

What really makes sales taxes fun in the US is that they are variable in many states. If I go to my local Walmart at the start of the school year, some items I pick up may be tax-free because they are considered school supplies and there's a "sales tax holiday", others items are considered "Groceries" and will be taxed at a reduced rate, but prepared (hot) foods, booze, and non-food items are taxed at the full rate.

Then there are the cities and counties that have additional sales taxes.

When I lived in Germany it took me about 5 minutes to fall in love with prices being listed inclusive of taxes.

Amazingly enough, other industries survive. I just bought a bunch of stuff from a deli, and somehow they appear to stay in business without tips.

Tips are just a way for restaurants to displace the risk of paying labor during slack business periods.

This! No customers no tips, cost of running the restaurant without customers is less. If tips as a way of paying employees were ever outright banned I'm sure there are plenty of smaller restaurants that would have to close.

Supposedly tips are common for jobs which rich people didn't do such as cutting hair, taxi, restaurant service.

I know I often tip my butler.

I find that with my household servants a Christmas bonus of passing down our secondhand possessions on Boxing Day is sufficient.

Where is this being practiced? I've been to pretty much every country in Europe in the last 20 years and in a conventional shop the tax (VAT) is always included in the price.

It's common in USA, because there are different sales taxes in different states. So advertised products are advertised without tax included in the price.

Why are the price tags universal across all stores and all states, and centrally produced? Or if they aren't, surely each shop can print out their own price tags and add the appropriate tax then.

Price tags are one thing. The region-wide ads for Kroger saying "milk is on sale for $1.99/gal this week with your Kroger Card" are another. A broadcast TV ad like that might be visible in 10 or more different sales tax areas. Having worked in retail, I have several anecdotes from customers getting annoyed over even the smallest pricing discrepancies. I had one shopper complain about being charged less than the price in the mailed circular on the theory that the chosen product was of lesser quality than the advertised product.

It goes further than that; a county or even a town can have a separate sales tax. You can have 9% in one county, 10% in a city inside the county, or 8% the next county over.

And even beyond that, some governments levy different taxes on different items (e.g., lower tax on groceries), while other nearby governments may levy the same tax on everything.

Further, some governments charge tax on the pre-coupon/pre-discounted price, while others tax only the actual final price.

Further still, some entities like public schools are exempt from paying sales taxes in many states/municipalities. In this case, the price sign would have to show both a pre-tax and tax-included price on it, which may be the best solution anyway.

Regardless, these differences are probably easiest to account for at the point of sale.

A tangential, but this complexity is one reason I think that sales tax should largely be abolished in favor of rolling it into income taxes. The only context it makes much sense in is taxing various luxuries. Beyond that, it's confusing, adds administrative overhead, and discriminates towards those with lower incomes.

I'd almost go so far as to say it's almost universal in the US. The main exceptions:

Gasoline (petrol) is always priced with all taxes included.

If the establishment is small enough that they're not using a register for cash transactions, they won't add tax. For instance if you buy a hot dog from a food cart for $4, that will be the whole price.

But for just about anything bought inside an actual store, tax will be added on.

It's limiting the ability for consumers to compare and it's opening the way for cheating, it's unhealthy for the market.

The advertised price has to be what the consumer will pay. I'm pretty sure some America guy got a Nobel prize in economics for discovering that.

In some states it's required for sales tax to be listed as a separate line item. Gas is exempt from this.

In the planet money podcast, they were talking about how Colorado's new marijuana tax policy should have been implemented, whether the tax should be paid by the grower (which would result in the tax being included in the price) or by the consumer (which would result in the tax being added at the register, which is common for sales taxes in the US).

Their conclusion was that if governments wanted to limit consumption, they should choose a policy such that the cost was included in the sticker price, but if they wanted to maximize tax revenue, then they should collect the tax at the register.

The way I understand how VAT taxes work, it would seem that this would be friendlier to consumers, to the detriment, perhaps, of overall consumer spending.

The way it works in Australia (I think, certainly not 100% sure) is through tax credits. The miller buys wheat from a farmer, and pays tax because it's a sale. But the miller gets tax credits for later selling that wheat to a baker (in the form of flour). The baker pays tax on the flour, but puts tax on the bread. At each stage value is added to the object, and due to the credits, the differential of that value has the appropriate tax.

So if you have a wholesale/retail business, you have an easier time of it - everything gets taxed at the same level, and your clients that onsell can claim their own tax credits. It is the final purchaser of the product that ends up actually forking out for the tax.

It's extremely common in the US. Each state, county, city, different "special districts" can impose their own sales tax. For things like national chains it would be impossible to advertise prices, as one store may be under 10% sales tax and a mile away one is under 15%.

But then what about buying stuff online like amazon? Coming from Europe this sounds very confusing.

They collect sales tax. If you buy from a small retailer out-of-state, you;'re supposed to declare the purchase on your state tax return and pay 'use tax' (ie the sales tax you would have paid if you'd bought it locally).

It's far less confusing in practice. I mean if Americans are as dumb as Europeans assume us to be then surely it would be chaos over here if it were really as complicated as it's made to sound in Europe.

This is because other sellers are printing the price without tax, so the price with tax appears expensive. If all prices had to include tax, then people would get used to it, and the total consumption would be same in the end.

"Just set the price higher to cover the wages!"

For a few reasons.

First the amounts won't end up nice and round at particular hot button price points. ($5 drinks all day!) [1]

Second, the price will have to be displayed higher and in theory this will make it less likely for someone to get a particular dish. If the restaurant could get more money for the same disk in theory they would already be doing that.

Bottom line is the same way that autos are sold (or airline tickets where you now pay separately for baggage) advertising a lower price and having add on's sometimes (but not always) works in your favor in generating sales. Because you are able to price below magic numbers floating around in people's head.

[1] In the same way pricing an item at $4.99 will in general generate more sales than $5.25. (Example not restaurant pricing but to prove a point).

I think the counter argument is that in other places where tipping isn't mandatory or even common, reataurants are still able to do fine.

However, based on my own personal and rather unscientific experience, going out to dinner is less common in much of Europe and restaurants employ fewer front of house staff. So while the restaurants that exist might do fine (or as 'fine' as any restaurant does), there are quite probably less of them and they certainly employ less people.

Which I guess is the real problem. Removing tipping will increase unemployment.

That hasn't been my experience at all--I see tons of restaurants filled with plenty of people in most European cities, and they seem to have adequate numbers of efficient waitstaff.

>First the amounts won't end up nice and round at particular hot button price points

Why? The price is designed to end up that way, if people will have to add 15% on every item they will modify their cost structure.

>airline tickets yes if I want to add a service I pay, but in a restaurant I don't have the option to be served without the waiter, so it's not fair to the consumer that has the right to know how much he has to pay when he orders something.

When a book a ticket the full price is displayed before I make the purchase, not after I used the service.

Also for the waiter lobster and champagne require the same effort of soup and tap water, so it's not like adding a language of 15 or 20 kg.

To me, this is what Uber did (one of the things) to car service. I just opened up OpenTable the other day and it appears they're experimenting with the "dine and walk out" model that mimics the Uber approach in a restaurant. That might be as close as you can get to what you want right now.

Because then you'd need different menus for takeout, in-restaurant, and delivery.

save 15% if you takeout and avoid inflated drink prices? takeout and in-restaurant could still be the same price...

> Why not just show the real price in the menu?

because the real service costs would be higher than the price of the meal? I have no experience in gastronomy but I guess you pay for being serviced in a restaurant (including table, dishes ...). The 'real' price of the meal is of minor significance.

I meant that the price for an item should have those costs baked in.

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