A sales tax is a consumption tax A consumption tax is a tax on spending on goods and services. The term refers to a system with a tax base of consumption. It usually takes the form of an indirect tax, such as a sales tax or value added tax. However it can also be structured as a form of direct, personal taxation: as an income tax that excludes investments and savings. A direct charged at the point of purchase Point of sale or checkout is the location where a transaction occurs. A "checkout" refers to a POS terminal or more generally to the hardware and software used for checkouts, the equivalent of an electronic cash register for certain goods and services. The tax amount is usually calculated by applying a percentage In mathematics, a percentage is a way of expressing a number as a fraction of 100 . It is often denoted using the percent sign, "%", or the abbreviation "pct". For example, 45% (read as "forty-five percent") is equal to 45 / 100, or 0.45 rate to the taxable price of a sale. A portion of the sale may be exempt from the calculation of tax, because sales tax laws usually contain a list of exemptions Various tax systems grant a tax exemption to certain organizations, persons, income, property or other items taxable under the system. Such status may provide a potential taxpayer complete relief from tax, tax at a reduced rate, or tax on only a portion of the items subject to tax. Examples include exemption of charitable organizations from. Laws governing the tax may require it to be included in the price (tax-inclusive In a tax system and in economics, the tax rate describes the burden ratio at which a business or person is taxed. There are several methods used to present a tax rate: statutory, average, marginal, effective, effective average, and effective marginal. These rates can also be presented using different definitions applied to a tax base: inclusive) or added to the price at the point of sale.

Most sales taxes are collected from the buyer by the seller, who remits the tax to a government agency. Sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services. Ideally, a sales tax would have a high compliance rate, be difficult to avoid, and be simple to calculate and collect.

Contents

Types of Sales Tax

A conventional or retail sales tax is charged only on the sale of an item to its final end user. To achieve this, a purchaser who is not an end user is usually required to provide the seller with a "resale certificate," which states that the seller is purchasing an item to resell it. The tax is charged on each item sold to purchasers who do not provide such a certificate.

Other types of sales taxes, or similar taxes, include:

Most countries in the world have sales taxes or value-added taxes at all or several of the national, state, county or city government levels. Countries in Western Europe Western Europe is a loose term for the collection of countries in the westernmost region of Europe, though this definition is context-dependent and carries cultural and political connotations. One definition describes Western Europe as a geographic entity — the region lying in the Western part of Europe. Another definition was created during the, especially in Scandinavia Scandinavia is a region in northern Europe that includes Denmark and the Scandinavian Peninsula's two nations, Norway and Sweden. Finland is sometimes considered a Scandinavian country in common English usage, and Iceland and the Faroe Islands are sometimes also included. The term Nordic countries refers to Denmark, Norway and Sweden as well as have some of the world's highest valued-added taxes. Norway After World War II, Norway experienced rapid economic growth, with the first two decades due to the Norwegian shipping and merchant marine and domestic industrialization, and from the early 1970s, a result of exploiting large oil and natural gas deposits that had been discovered in the North Sea and the Norwegian Sea. Today, Norway ranks as the, Denmark Denmark is a constitutional monarchy with a parliamentary system of government. Denmark has a state-level government and local governments in 98 municipalities. Denmark has been a member of the European Union since 1973, although it has not joined the Eurozone. Denmark is a founding member of NATO and the OECD. Denmark is also a member of the and Sweden Sweden (pronounced /ˈswiːdən/ SWEE-dən, Swedish: Sverige pronounced [ˈsveːrijə] ( listen)), officially the Kingdom of Sweden (Swedish: Konungariket Sverige (help·info)), is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden has land borders with Norway to the west and Finland to the northeast, and water borders with have the highest VATs at 25%[2][3], although reduced rates are used in some cases, as for groceries, art, books and newspaper.[4]

In some countries, there are multiple levels of government which each impose a sales tax. For example, sales tax in Chicago Chicago ( /ʃɨˈkɑːɡoʊ/ or /ʃɨˈkɔːɡoʊ/) is the largest city in both Illinois and the Midwest, and the third most populous city in the United States, with over 2.8 million residents. Its metropolitan area, commonly named "Chicagoland", is the 26th most populous in the world, home to an estimated 9.7 million people spread (Cook County) Cook County is a county in the U.S. state of Illinois. It is the second most populous county in the United States after Los Angeles County. According to 2008 US Census Bureau estimates, the county has 5,294,664 residents, which is larger than the populations of 29 individual U.S. states, the combined populations of the seven smallest US states,, IL is 10.25%—consisting of 6.25% state, 1.25% city, 1.75% county and 1% regional transportation authority, Chicago also has the Metropolitan Pier and Exposition Authority tax on food and beverage of 1% (which means eating out is taxed at 11.25%).[5] For Baton Rouge, Louisiana, the tax is 9%, consisting of 4% state and 5% local rate.[6]

Until 2010, there had never been a federal sales tax in the United States; however, the 2010 health care reform law now imposes a 10% federal sales tax on indoor tanning services.[7][8]

The trend has been for conventional sales taxes to be replaced by more broadly based value added taxes, and the United States is now one of the few countries to retain conventional sales taxes. VAT has been adopted by the European Union, Mexico, Australia, Canada (Goods and Services Tax The Canadian Goods and Services Tax (French: Taxe sur les produits et services, TPS) is a multi-level value-added tax introduced in Canada on January 1, 1991, by Prime Minister Brian Mulroney and finance minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers' Sales Tax (MST); Mulroney claimed the GST was implemented because the MST) and many other countries. Most provinces in Canada impose a sales tax alongside the federal GST.

Effects

Sales taxes are considered regressive A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. In simpler terms, a regressive tax imposes a greater burden on the poor than on the rich — there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or; that is, the tax imposes a greater burden on low-income families than wealthy families. This is an effect of spending; lower-income families spend more and save less of their income. The regressive effect can be mitigated with exemptions for "necessary" items, such as food, clothing and medicines.[9]

Sales tax planning

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In many jurisdictions, there are opportunities for businesses to proactively plan and structure significant transactions to reduce future tax burdens. Sales tax planning may include the following:

See also

References

  1. ^ Chamberlain, Andrew; Fleenor, Patrick (2006-12-01). "Tax Pyramiding: The Economic Consequences of Gross Receipts Taxes". Tax Foundation. http://www.taxfoundation.org/news/show/2061.html. Retrieved 2007-02-21.
  2. ^ VAT Rates Applied in the Member States of the European Community European Commission Taxation and Customs Union (2009-7-1), retrieved 2009-12-7
  3. ^ Guide to Value Added Tax in Norway Skatteetaten (2009-4-7), retrieved 2009-12-7
  4. ^ The VAT Brouchure (9th ed.), Swedish Tax Agency, May 2008, p. 6, SKV 552B, http://www.skatteverket.se/download/18.2132aba31199fa6713e800013050/552B09.pdf, retrieved 30 July 2008
  5. ^ Tax Rate Finder Illinois Revenue official website, retrieved 2009-12-7
  6. ^ Sales and Use Tax Rates effective 7/1/2009 East Baton Rouge Parish, retrieved 2009-12-7
  7. ^ Tax Provisions in the Health Care Act AICPA Journal of Accountancy, retrieved 2010-04-02
  8. ^ H.R. 3590 Sec. 10907 HealthReformStat, retrieved 2010-04-02
  9. ^ "Who Pays? A distributed analysis of the tax systems in all 50 states". The Institute on Taxation & Economic Policy. January 2003. http://www.itepnet.org/wp2000/text.pdf. Retrieved 2009-12-7.

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