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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 $30. At the point of manufacture the value added to the product is an additional $40. At the point of the wholesaler the value added is an additional $70. Then finally at the point of retail sale the value added is an additional $105.
Problem (i) 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? (I.e.: extraction, manufacture, wholesale, and retail.)
Problem (ii) 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? (Again: extraction, manufacture, wholesale, and retail.)
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