$1.70 of the $3.50 gas station hotdog you buy goes to taxes

This 1979 article is about a gas station called the “Yellow Porcupine” in Salt Lake City, Utah that was selling “chili dogs” for 45 cents apiece.<br><br>The manager did a special analysis of the hotdog stand's cost, and did a detailed survey on the cost of each component of the hotdog. The breakdown is as follows:<br><br>* The food cost per chili dog is 13 cents<br>* Labor costs per chili dog is 3 cents<br>* Packaging costs (napkin, condiments, etc) is 5 cents<br>* Overhead cost per chili dog is 6 cents<br>* Insurance cost per chili dog is .5 cents<br>* Profit is 12 cents<br><br>So the total cost of the chili dog is 39.5 cents, meaning they have a 5.5 cent loss for each hotdog sold for 45 cents.<br><br>How does this make sense? Well, the manager said that after state, federal, and local taxes, 31.5% of their proceeds go to taxes. This means that they only get 68.5% of the proceeds from the chili dogs, with the remaining 31.5% of proceeds going to taxes. <br><br>After adjusting for the 31.5% tax rate, the 45 cent chili dog really only nets 31 cents in proceeds, with the 31.5% in taxes being the remaining 14 cents. <br><br>31 cents - 39.5 cents in costs = a 8.5 cent loss for each chili dog sold at 45 cents apiece.<br><br>So we can work in reverse to determine the proceeds necessary to break even on each hotdog. To break even, we would need 39.5 cents in proceeds from each hotdog. <br><br>Let’s call the selling price of the hotdog before tax X. <br><br>X\* .685 = .395<br><br>Solving for X, we can divide both sides by 0.685. <br><br>X = .395/.685<br><br>X = 0.577<br><br>So in order to break even, the proceeds from the hotdog would need to be 57.7 cents. After adjusting for the 31.5% tax rate, we can determine the total price the customer needs to pay for the hot dog to break even. <br><br>.577/.685 = .842<br><br>So the customers need to pay 84.2 cents for the hotdog in order to have the proceeds of the hotdog be high enough to break even (39.5 cents in costs - 39.5 cents in proceeds = 0 cent profit, aka break even). <br><br>Any price below 84.2 cents would result in a loss, and any price above 84.2 cents would result in profit. <br><br>Now, let’s do the same math with a modern hotdog stand. The modern hotdog stand we will be considering is at a gas station near a highway. It’s part of a large chain of gas stations with hundreds of locations across the US. This one is in the Mid-Atlantic and they sell their hotdogs for $3.50 apiece. <br><br>I called up the manager and asked him to do a detailed breakdown of the cost of each hotdog, and the total cost per hotdog came out to be $1.93, with detailed cost breakdown below: <br><br>* The food cost per chili dog is $1.22<br>* Labor costs per chili dog is $.23<br>* Packaging costs (napkin, condiments, etc) is $.15<br>* Overhead cost per chili dog is $.21<br>* Insurance cost per chili dog is $.06<br>* Profit is $.63<br><br>Now, we can determine what percent of the revenue from the $3.50 chili dog is profit, and what percent is taxes. <br><br>$3.50 in revenue - $1.93 in costs = $1.57 in profit and taxes. <br><br>$1.57 - $0.63 in profit = $0.94 in taxes. <br><br>$0.94 in taxes as a percent of $3.50 overall is 26.8% in taxes, and 73.2% in non-tax proceeds. <br><br>Let’s call the original price of the hotdog X.<br><br>X\* 0.732 = 1.93<br><br>X = 1.93/0.732 <br><br>X = 2.64<br><br>So in order to break even, the customers would need to pay $2.64 for each hotdog. <br><br>Anything below $2.64 would result in a loss for the hotdog stand, and anything above $2.64 would be profit. <br><br>So if you thought that gas stations have 100% markup on everything they sell, it’s actually more like a 32% markup, with the remaining 68% consisting of costs and taxes. <br><br>Edit: I should add that gas stations don’t typically pay property tax or income tax on their land/property, as it is assessed as industrial property and does not need to pay property taxes. However, there are other taxes, such as payroll tax, capital gains tax, and other miscellaneous taxes that contribute to the 26.8%.<br><br>Edit2: I've been getting a lot of comments like these:<br><br>>Yeah but what about the 300% markup on everything else in the store?<br><br>>Yeah but what about the 300% markup on the gas?<br><br>I would like to clarify that the 31.5% tax rate is for the hotdog stand specifically. The rest of the convenience store has a much, much lower tax rate. I suspect they have a 5-7% tax rate for the rest of the items, which would give them like a 100-150% markup. I'd be happy to do an analysis for the rest of the store if anyone is interested.