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 point of service can mean a retail shop, a checkout counter in a shop, or the location where a transaction occurs. By synecdoche point of sale often refers to a POS terminal or more generally to the hardware and software used for checkouts – the equivalent of an electronic cash register. Point of sale systems are used in for certain goods and services. The tax is usually set as 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, "%". For example, 45% (read as "forty-five percent") is equal to 45 / 100, or 0.45 by the government charging the tax. There is usually a list of exemptions Normally a tax exemption is provided to an individual or organization which falls within a class which the government wishes to promote economically, such as charitable organizations. Tax exemptions are usually meant to either reduce the tax burden on a particular segment of society in the interests of fairness or to promote some type of economic. The tax can 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 at the point of sale (tax-exclusive 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).
Most sales taxes are collected by the seller, who pays the tax over to the government which charges the tax. The economic burden of the tax usually falls on the purchaser, but in some circumstances may fall on the seller. Sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services. Ideally, a sales tax is "fair" The FairTax is a proposed change to the federal tax laws of the United States that would replace all federal income taxes with a single national retail sales tax. 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 and services for personal, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, and is simple to calculate and simple to collect.
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Types
A conventional or retail sales tax is charged only on the final end user. To achieve this, a purchaser who is not an end user is usually required to produce to the seller a "resale certificate". The tax is charged on each item sold to purchasers who do not produce such a certificate.
There are several other types of sales taxes[1]
- Seller or Vendor Taxes, for a gross receipts tax A gross receipts tax, sometimes referred to as a 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 levied on all sales of a business. This produces so-called tax "cascading" or "pyramiding," in which an item is taxed more than once as it makes its way from production to final retail sale.
- Consumer Excise Taxes An excise or excise tax is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good, often on high value items like gasoline or alcohol, and often imposed on the producer rather than the seller
- Retail Transaction Taxes
- Value Added Taxes Value added tax , or goods and services tax (GST) is a consumption tax levied on value added. In contrast to sales tax, VAT is neutral with respect to the number of passages that there are between the producer and the final consumer; where sales tax is levied on total value at each stage, the result is a cascade (downstream taxes levied on, in which tax is charged on all sales, thus avoiding the need for a system of resale certificates. Tax cascading is avoided by permitting the seller to remit to the government only the difference between the tax charged to the purchaser and the tax paid by the seller to its suppliers (the "value added").
- 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 purchaser on goods purchased without sales tax, for example purchases made in another state or purchases over the internet. Use taxes are commonly imposed by states in the United States, but are difficult to enforce except on large items such as automobiles and boats.
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 Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally divided from Asia to its east by the water divide of the Ural Mountains, the Ural River, the Caspian Sea, and by the Caucasus Mountains to the southeast. Europe is washed upon to the north by the Arctic Ocean and, especially in Scandinavia Scandinavia is a historical and geographical region in northern Europe that includes, and is named after, the Scandinavian Peninsula. It consists of the kingdoms of Norway, Sweden, and Denmark; some authorities argue for the inclusion of Finland and Iceland, in Scandinavia the term is, however, used unambiguously for Denmark, Norway and Sweden, have some of the world's highest valued-added taxes. Norway Norway (pronounced /ˈnɔɹweɪ/ ; Norwegian: Norge (Bokmål), Noreg (Nynorsk)) or Norga (North Sami), officially the Kingdom of Norway, is a country in Northern Europe occupying the western portion of the Scandinavian Peninsula, as well as Jan Mayen and the Arctic archipelago of Svalbard under the Spitsbergen Treaty. The majority of the country, Denmark Denmark (pronounced /ˈdɛnmɑrk/ ; Danish: Danmark, pronounced [ˈd̥ænmɑɡ̊], archaic: [ˈd̥anmɑːɡ̊]) is a Scandinavian country in northern Europe and the senior member (with Greenland and the Faroe Islands) of the Kingdom of Denmark. It is the southernmost of the Nordic countries. The mainland is bordered to the south by Germany and Sweden Sweden (pronounced /ˈswiːdən/ ), 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 it is connected to Denmark by the Öresund Bridge in the south have the highest VATs at 25%[2], although reduced rates are used in some cases, as for groceries and newspaper.[3] In some countries, there are multiple levels of government which each impose a sales tax. For example, sales tax in Chicago Chicago is the largest city in the U.S. state of Illinois, and with over 2.8 million people is the third largest city in the United States. Located on the southwestern shores of Lake Michigan, Chicago is the third-most densely populated major city in the U.S., and anchor to the world's 26th largest metropolitan area with over 9.5 million people (Cook County), IL is 10.25%--the highest among major cities in the United States--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%). And in Baton Rouge, Louisiana, the tax is 9%, consisting of 4% state and 5% local rate.[4] Combined sales taxes in the town of Arab, Alabama were highest in the US at 12% in 2008 according to a study by tax firm Vertex, Inc. In Tennessee Tennessee ( /tɛnɨˈsiː/ ) is a state located in the Southeastern United States. According to the 2008 census, it has a population of 6,214,888, an increase of nearly 9.5% since 2000. Tennessee is the 14th fastest growing state in the US and is ranked 17th by population. It is ranked 36th by total land area. In 1796, it became the 16th state to the sales tax is 7%, with a local option of up to 2.75%, due to the lack of a state income tax. However, there is no general nationwide sales tax in the United States.
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 to be regressive tax A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. In simple 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 income; that is, low income people tend to spend a greater percentage of their income in taxable sales (using a cross section time-frame) than higher income people.[5] However, this calculation is derived when the tax paid is divided not by the tax base (the amount spent) but by income, which is argued to create an arbitrary relationship.[citation needed] If all purchases are subject to the same tax rate, the tax rate itself is flat with those who consume more paying more in taxes. While the tax on spending as a percentage of gross income may be regressive, the effective tax rates can be progressive A progressive tax is a tax by which the tax rate increases as the taxable amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate. It can be applied to individual taxes or to a tax on consumption due to exemptions or rebates. If a sales tax is to be related to income, then the unspent income can be treated as tax-deferred Deferred tax is an accounting concept, meaning a future tax liability or asset, resulting from temporary differences between book value of assets and liabilities and their tax value, or timing differences between the recognition of gains and losses in financial statements and their recognition in a tax computation (spending savings at a later point in time), at which time it is taxed.[citation needed] Sales taxes often exclude items or provide rebates in an effort to create progressive effects. In many locations, "necessary" items such as non-prepared food, clothing, or prescription drugs are exempt from sales tax to alleviate the burden on the poor.
Sales tax planning
In many jurisdictions, there are opportunities for corporations to proactively plan and structure significant transactions to reduce future tax burdens. Corporate 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 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 which assets may qualify for exemptions. Finding overlooked exemptions often results in significant savings.[6]
- 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 In Canada there are three types of sales taxes: provincial sales taxes or PST, the federal Goods and Services Tax or GST, and the Harmonized Sales Tax or HST
- 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. Hawaii has a similar tax
- Goods and Services Tax (Australia) It was introduced by the Howard Government on 1 July 2000, replacing the previous Federal wholesale sales tax system and designed to phase out a number of various State and Territory Government taxes, duties and levies such as banking taxes and stamp duty
- 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 is a type of tax charged on goods produced within the country (as opposed to customs duties, charged on goods from outside the country). It is a tax on the production or sale of a good
- Turnover tax
- Links to Sales Tax Help
References
- ^ "Types of Sales Taxes". Business Owner's Toolkit. http://www.toolkit.com/small_business_guide/sbg.aspx?nid=P07_4015. Retrieved on 2007-10-10.
- ^ VAT rates in the European Union [1]
- ^ The VAT Brouchure (9th ed.), Swedish Tax Agency, May 2008, p. 6, SKV 552B, http://www.skatteverket.se/download/18.2132aba31199fa6713e800013050/552B09.pdf, retrieved on 2008 2008 was a leap year that started on Tuesday of the Anno Domini era (or Common Era)-07-30 July 30 is the 211th day of the year in the Gregorian calendar. There are 154 days remaining until the end of the year
- ^ http://brgov.com/dept/finance/newrates.htm
- ^ "Most state tax systems are regressive". http://www.itepnet.org/wp2000/text.pdf.
- ^ Sales and Use Tax Planning
Categories: Sales taxes
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He wants Myrtle Beach City Council to ask voters if they want an additional one percent sales tax to fund tourism promotion So far, nearly 40 businesses ...
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Subsequent Tax Sales Until the right of redemption has been foreclosed or the title has ripened by prescription a tax deed has the same force and
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If you are gearing up for back-to-school time, you'll want to keep in mind the upcoming Tennessee . sales tax. holiday. From August 7-9, 2009, you can shop with out paying . sales tax. on certain items. Items that are exempt include clothing ...
Q. I hosted a party at my home and was able to earn so much in free products depending upon sales from my guests. What I don't understand is that the party rep is trying to charge me sales tax on the full cost of the items that I chose as my free gifts. Is this legal? How can I pay sales tax on something I am not even buying?
Asked by punkinbutt'smama - Sun Apr 20 10:37:01 2008 - - 4 Answers - 1 Comments
A. That's governed by State law. Some states levy sales tax on the net sales price, including free goods, meaning you'd pay nothing. Others levy on the normal selling price before the application of any price reductions, coupons, or freebies. The one thing that you didn't ask, but I'll provide it anyway is the income tax treatment of the free products you received. They are taxable as ordinary income at their normal retail value, less the sales tax that you paid. This is treated as Self-Employment income so you report it on Schedule C when you file your tax return. If the net profit is over $400, you need to attach Schedule SE to calculate the Self-Employment tax. If the value of the free goods was $600 or more you should receive a… [cont.]
Answered by bostonianinmo - Sun Apr 20 11:47:31 2008
