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:
- Gross receipts taxes A gross receipts tax or gross excise tax is a tax on the total gross revenues of a company, regardless of their source. A gross receipts tax is similar to a sales tax, but it is levied on the seller of goods or services rather than the consumer. This is compared to other taxes that are listed as separate line items on billings, are not directly, levied on all sales of a business. This tax has been criticized for its "cascading" or "pyramiding" effect, in which an item is taxed more than once as it makes its way from production to final retail sale.[1]
- Excise taxes An excise or excise tax may be defined broadly as an inland tax on the production for sale; or sale, of a specific good, or narrowly as a tax on a good produced for sale, or sold, within the country. Excises are distinguished from customs duties, which are taxes on importation. Excises, whether broadly defined or narrowly defined, are inland taxes,, applied to a narrow range of products, such as gasoline or alcohol, usually imposed on the producer or wholesaler rather than the retail seller.
- Use tax A use tax is a type of excise tax levied in the United States. It is assessed upon otherwise "tax free" tangible personal property purchased by a resident of the assessing state for use, storage or consumption of goods in that state , regardless of where the purchase took place. The use tax is typically assessed at the same rate as the, imposed directly on the consumer of goods purchased without sales tax, generally items purchased from a vendor in another state and delivered to the purchaser by mail or common carrier A common carrier in common-law countries is a person or company that transports goods or people for any person or company and that is responsible for any possible loss of the goods during transport. A common carrier offers its services to the general public under license or authority provided by a regulatory body. The regulatory body has usually. Use taxes are commonly imposed by states with a sales tax, but are difficult to enforce on consumers, except for large items such as automobiles and boats.
- Value Added Taxes Value added tax is similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Maurice Lauré, Joint Director of the French Tax Authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954,, in which tax is charged on all sales, thus avoiding the need for a system of resale certificates. Tax cascading is avoided by applying the tax only to the difference ("value added") between the price paid by the first purchaser and the price paid by each subsequent purchaser of the same item.
- FairTax The FairTax is a proposed change to the federal government tax laws of the United States intended to replace all federal income taxes with a single broad national consumption tax on retail sales. The plan has been introduced into the United States Congress as the Fair Tax Act . The tax would be levied once at the point of purchase on all new goods, a proposed federal sales tax, intended to replace the federal income tax.
- Turnover tax, similar to a sales tax, but applied to intermediate and possibly capital goods as an indirect tax In the colloquial sense, an indirect tax (such as sales tax, value added tax , or goods and services tax (GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the customer). The intermediary later files a tax return and forwards the tax proceeds to.
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
| This section does not cite any references or sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be and removed. (March 2010) |
| This section may need to be wikified to meet Wikipedia's quality standards. Please help by adding relevant internal links, or by improving the section's layout. (March 2010) |
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:
- Determination of ways to legally reduce the amount of tax due on a transaction. For instance, how a company structures its invoices can affect the taxability of the entire transaction. Each jurisdiction has different rules for applying sales tax. Some jurisdictions' laws are more advantageous to a business taxpayer for certain types of transactions. If a business operates in several jurisdictions, choosing the best one in which to take delivery can reduce or eliminate the sales tax liability.
- Review of company purchases to determine whether tax was paid in error to purchase assets qualifying for exemptions.
- Periodic review of procedures relating to sales & use tax data gathering and retention. Proper supporting detail, including exemption and resale certificates, and invoices and other records must be available to defend the company in the event of a sales and use tax audit.
See also
- Sales taxes in Canada Every province except Alberta has implemented either a provincial sales tax or the Harmonized Sales Tax. The federal GST rate is 5 percent, effective January 1, 2008
- Sales taxes in the United States Sales taxes in the United States are taxes added onto the price of goods or services that are purchased in the United States. A sales tax is a tax on consumption, which is displayed as a percentage of the sale price. Sales taxes are assessed by every state except Alaska, Delaware, Montana, New Hampshire and Oregon.[citation needed] Hawaii has a
- Goods and Services Tax (Australia) The GST is a broad sales tax of 10% on most goods and services transactions in Australia. It is a value added tax, not a sales tax, in that it is refunded to all parties in the chain of production other than the final consumer
- Sales Tax Audit
- 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
- Excise tax An excise or excise tax may be defined broadly as an inland tax on the production for sale; or sale, of a specific good, or narrowly as a tax on a good produced for sale, or sold, within the country. Excises are distinguished from customs duties, which are taxes on importation. Excises, whether broadly defined or narrowly defined, are inland taxes,
- Turnover tax
- Value added tax Value added tax is similar to a sales tax. It is a tax on the estimated market value added to a product or material at each stage of its manufacture or distribution, ultimately passed on to the consumer. Maurice Lauré, Joint Director of the French Tax Authority, the Direction générale des impôts, was first to introduce VAT on April 10, 1954,
- FairTax The FairTax is a proposed change to the federal government tax laws of the United States intended to replace all federal income taxes with a single broad national consumption tax on retail sales. The plan has been introduced into the United States Congress as the Fair Tax Act . The tax would be levied once at the point of purchase on all new goods
References
- ^ 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.
- ^ VAT Rates Applied in the Member States of the European Community European Commission Taxation and Customs Union (2009-7-1), retrieved 2009-12-7
- ^ Guide to Value Added Tax in Norway Skatteetaten (2009-4-7), retrieved 2009-12-7
- ^ 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
- ^ Tax Rate Finder Illinois Revenue official website, retrieved 2009-12-7
- ^ Sales and Use Tax Rates effective 7/1/2009 East Baton Rouge Parish, retrieved 2009-12-7
- ^ Tax Provisions in the Health Care Act AICPA Journal of Accountancy, retrieved 2010-04-02
- ^ H.R. 3590 Sec. 10907 HealthReformStat, retrieved 2010-04-02
- ^ "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.
Categories: Sales taxes
Fri, 20 Aug 2010 03:15:55 GMT+00:00
proposal on November ballot Kansas City Star Kansas City voters will decide in November whether to extend a quarter-cent sales tax for 15 years to pay for police and other ... To get public safety sales tax on November ballot, KC Council must act today Kansas City Star Kansas City should scale back public safety sales tax Kansas City Star Sales Tax to Voters, But Not Charter Change kcur
478px x 623px | 67.50kB
[source page]
Your Options Buy Now Download Learn More View Screenshot
