What is a sales tax?
Sales tax is a percentage or an amount of money imposed by the government on top of a product’s price or service purchased by a retail consumer. Later on, the retailers and business owners will collect and track their sales tax to give it to the governing tax authority. Retailers can pay every month or every three months. A sales tax depends on the state. The application can be by country, city, or region on top of state sales tax.
Types of sales tax
Every state has a different imposition of their taxes, and there are primarily two types of sales tax: Seller Privilege and Consumer Tax.
The states that use the seller privilege taxing system make the seller responsible for the tax. Regardless of there is tax collection or not, the seller must remit the tax to the authorities. Why is it imposed? It is due to the privilege of doing business in the state. There is no requirement for a company to include the tax on receipts or invoices, but most companies still show it. The collection can only come from the seller’s end.
On the other hand, states that use consumer taxing system imposes the tax on buyers, and the seller must collect and remit it to the authorities. This taxing system is what most states use. What if the seller was not able to manage the tax from the buyer? The seller still needs to remit the tax to the authorities. However, it is more convenient if the seller can collect directly from the buyer. Why is it imposed? It is due to the privilege of product or service consumption and use. State collection is doable on either the seller or the buyer.
Sales tax collection
How does a company or business collect sales tax? First, they need to make a sales tax permit application in their state’s taxing authorities. It depends on the state if this application comes with a fee.
Sales tax remission
After sellers finish collecting taxes from consumers in their purchases, they will now remit the money to the state’s taxing authority. It is allowed to be on a monthly or quarterly basis. What happens if sellers fail to remit taxes on time? The sellers will need to pay penalties.
Use tax
There is an imposition of use tax when people buy products outside their state or jurisdiction. Albeit having the same rate as sales tax, use tax can be tough to apply unless these said people who don’t come from that jurisdiction buy large amounts of products.
Which products and services are taxed?
The state does not add taxes on several products and services. Listed below are some examples:
- Resale items for consumers. Retail consumers are responsible for paying the taxes after.
- Raw materials. Materials used in creating and manufacturing products are exceptions.
- Nonprofit. Nonprofit organizations are not required to pay taxes.
- Groceries, clothing, and prescription. Many states do not put a sales tax on these products.
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