Question

A supply chain is adding value to a product. (Think of cotton starting in a field, being turned into cotton thread, then a shirt, then a designer shirt.) At the point of extraction the value added to the product is $10. At the point of manufacture the value added to the product is an additional $12. At the point of the wholesaler the value added is an additional $14. Then finally at the point of retail sale the value added is an additional $16.

(Part A) In the European Union this product would be subject to a 15% value added tax. How much tax will be due at each stage of the products development?

(Part B) In Chicago, IL this product would be subject to a 6.25% Illinois state sales tax and a 10.25% Chicago city sales tax. How much tax will be due at each stage of the products development?

Answer 1

Part (A)

Action	Value added		VAT(@15%)
Extraction	$10	Value added*15%	$1.50
Manufacturing	$21		$3.15
wholesaler	$14		$2.10
Retail	$16		$2.40

Part (b) Total Tax = 6.25% +10.25% = 16.50%

Action	Value added	Price		TAX(@16.50%)
Extraction	$10	$10	Price *16.5%	$1.65
Manufacturing	$21	$31		$5.12
wholesaler	$14	$45		$7.43
Retail	$16	$61		$10.07