RE: ECON: Eliezer's calls

From: Billy Brown (
Date: Sat Mar 04 2000 - 15:13:42 MST

Michael S. Lorrey wrote:
> There is no national sales tax, and there is no state sales tax in my
> outside of meals & rooms, and professional services, so I don't need to
> anything. Barter is not illegal. The IRS wishes it were, though. If no
> changes hands, then how do they valuate the merchandise? Retail,
> distributor, or cost? How do I make out then? I do professional services
> exchange for goods, and I will exchange goods that I don't need and don't
> for goods that I would normally have to buy at retail. Since the value of
my own
> property to me is my cost, not the retail value, I gain 30-50% just on a
> transaction on that basis. Many people will give me a good discount as
well on
> their goods for doing a barter transaction, on the order of 10-30%. Almost
> of my computer equipment has been purchased in this manner.

This gets very complex, and I'm not a tax accountant, so I can't tell you
every detail. However, it is my understanding that state, local and federal
agencies are virtually unanimous in claiming that barter transactions are
legally equivalent to monetary transactions. If a particular transaction is
not taxable in the first place it obviously doesn't matter, but if it is
taxable you're supposed to pay the tax whether you use money or not.

The IRS has labyrinthine rules covering schemes for paying wages via barter,
and how you are supposed to calculate the cash value of the goods or
services involved. States with income taxes mostly have similar rules.
Sales taxes often don't cover small personal transactions in the first
place, but where they do it usually doesn't matter whether cash changes
hands or not. Businesses, of course, are generally expected to collect
sales tax even on barter transactions, and once again there are byzantine
rules about how you are supposed to calculate cash values.

Mind you, a lot of these rules are not well enforced, due to the obvious
problems involved in collecting evidence. However, people who rely heavily
on barter to avoid taxes do tend to get prosecuted, especially if the dollar
value of the goods involved is large. In essence, then, using barter may
make tax evasion easier to get away with, but it doesn't mean you aren't
breaking the law.

Billy Brown

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