What Is a Sales Tax?

A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the 澳洲幸运5官方开奖结果体彩网:point of sale (POS), which is collected by the retailer and passed on to the government. A business may be liable for sales taxes in a given jurisdiction if it has a presence there, which can be a 澳洲幸运5官方开奖结果体彩网:brick-and-mortar locati﷽on, an employee, or an affiliate, depending on the laws in that jurisdiction. 

How Sales Taxes Work

Conventional or retail sales taxes are only charged to the end user of a good or service. Because the majority of goods pass through manufacturing stages, which are often handled by different entities, a significant amount of documentation is necessary to prove who is 澳洲幸运5官方开奖结果体彩网:ultimately liable for sales tax.

Suppose a sheep farmer sells wool to a company that 澳洲幸运5官方开奖结果体彩网:manufactures yarn. To avoid paying the sales tax, the yarn maker must obtain a resale certificate from the government saying they are not the end user. The yarn maker sells the product to a garment maker, who must also obt🥃ain a resale certificate. Finally, the garment maker sells fuzzy socks to a retail store, which charges the customer sales tax as part of the price.

Different jurisdictions can charge levels of 澳洲幸运5官方开奖结果体彩网:sales taxes. States, counties, and municipalities may also levy sales taxes of their own. For instance, a state might have a 4% sales tax, a county 2%, and a city 1.5%. This means that residents of tha🌃t city pay 7.5% in total. Keep in mind that the final purchase price for the same item may be different in different jurisdictions because of state, county, and local tax rates.

Certain items may be exempt from sales taxes in certain states, including food and beverages consumers buy to prepare and consume at home. Others are exempt below a certain threshold. For instance, consumers don't pay sales tax on clothing and footwear under $110. Anything above that amount is subject to state and local taxes.

Use Taxes

Sales taxes are closely related to use taxes, which apply to items purchased from o♒utside their jurisdiction. Use taxes are generally set at the same rate as sales taxes but are difficult to enforce, except when applied to large purchases of tangible goods.

An example of a use tax would be when a Georgia resident purchases a car in Florida. The buyer would be required to pay the local Georgia sales tax as though they bought it there. Comparison shoppers might use the 澳洲幸运5官方开奖结果体彩网:net of tax price to see if buying an item in one l𒈔ocation is beneficial over buying it in another location.

Nexus

A nexus is generally defined as a physical presence, but this is not limited to having an office or warehouse. Whether a business owes sales taxes to a particular government depends on the way the government de♊fines a nexus.

Having an employee in a state can constitute a nexus, as can having an 澳洲幸运5官方开奖结果体彩网:affiliate, such as a partner website that directs traffic to your business' page in exchange for a share of profits. This scenario is an example of the tensions between 澳洲幸运5官方开奖结果体彩网:e-commerce and sales taxes. For example, New York passed Amazon laws requiring internet retailers such as Amazon (AMZN) to pay sales taxes despite their lack of physical presence in the state.

Excise Taxes

Some products carry special taxes, known as 澳洲幸运5官方开奖结果体彩网:excise taxes. Businesses pay these taxes and pass them on to consumers. They can b꧟e imposed as a specific amount or a percentage of the value of the product or service, and are commonly integrated into the purchase price.

澳洲幸运5官方开奖结果体彩网:Sin taxes are a form of excise tax, such as the local excise tax of $1.50 New York City charges per pack of 20 cigarettes on top of the state's excise tax of $5.35 per pack of 20 cigarettes.

Value-Added Tax

The U.S. is one of the few developed countries where conventional sales taxes are still used. Outside of the U.S., many countries have adopted 澳洲幸运5官方开奖结果体彩网:value-added tax (VAT) schemes. Thes𒆙e charge a percentage of the value added at every level of production of a good.

In the example above, the yarn maker would pay a percentage of the difference between what they charge for yarn and what they pay for wool. Similarly, the garment maker would pay the same percentage on the difference between what they charge for socks and what they pay for yarn. This is a tax on each company's 澳洲幸运5官方开奖结果体彩网:gross margins, rather than on the end user.

The♏ main objective of the VAT is to eliminate tax on tax (i.e., double taxation) which cascades from the manufacturing level to the consumption level.

The U.S. system with no VAT implies that tax is paid on the value of goods and margin at every stage of the production process. This would translate to a higherꦇ amount of total taxes paid, which is carried down to the end consumer in the form of higher costs for goods and services.

The Bottom Line

Sales taxes are a key part of the U.S. tax system. They are applied at the point of sale and vary by state and local jurisdictions. Many other countries rely on VAT instead, where tax is applied at multiple stages of the production process. While sales tax rates differ across the U.S., they remain a significant part of both state and local government revenues.