Why do I pay so much sales tax? (cost of a cup of joe)

Will's Whiteboard

Ever wonder why you pay so much sales tax on certain items? You're not alone.


Hi, welcome to Will's Whiteboard. I'm Will. Here at Avalara we handle sales tax, and so we get a lot of questions from people about sales tax. Recently, we had a question come in from Joe. Joe live in Hayward, California, and Joe wants to know why he gets charges so much sales tax on his cup of coffee. He says I'm a regular guy, I got to the Coffee Corral every morning, pay four bucks for a cup of coffee, that's what it says on the menu, and then they hit me with 38 cents sales tax. Why does it cost so much? Joe, this one is for you.

All right Joe, let's answer that question. You're saying you go down to the Coffee Corral, you buy coffee for four bucks and they charge you 38 cents sales tax. Where the heck does that come from? Well, we've used your coffee cup to show where it comes from. The sales tax rate in your city of Hayward, California is 9.5%, now Joe, 6.5% of that goes to the state of California, 1% of that goes to your county, Alameda County, 0.5% of it goes to the fair city of Hayward, California. Then, you've got some special taxes these are often things that are voted in, and they might have expiration dates, sometime you might not have to pay them. There are things like a fund for the BART transportation system, a general improvement fund for transportation, and a fund for essential health care services. All of these go up to make this 9.5% which is why Joe, you pay four dollars and 38 cents.

Here is one thing I want you to take away, besides the fact that this is pretty complex. I don't want you to be mad at the Coffee Corral. Guess what, they have to keep all of these tax rates straight to know that this is 9.5%, to know that they need to charge you exactly 38 cents, and that's pretty tough. Hope this answers your question. Thanks very much, I'll see you next time.