What is a Sales Tax?
Sales tax can be simply defined as the tax which is levied by the government on the consumption of various goods and services. It can also be defined as the percentage added to the product and services from which the government earns revenue and do the welfare of the company. In the United States of America, there are 38 different states having different percentages of sales taxes associated with it. From Alaska (1.76%) to Tennessee (9.45%).
In the USA, businesses are responsible for tracking the collection of such tax from the customers and then remitting or submitting it back to the government
Types and Components of Sales Tax
#1 – Retail Transaction
This is the most common method for charging sales tax by the government these include all the retail goods such as FMCG or others which have some additional percentage attached in the final price of the goods. This tax is imposed on the customer
#2 – Vendor Privilege
These taxes are imposed on the various retailers in the state in which they are operating. It is just like a licensing tax which is levied by the various governments of the state on the retailers because of which they are operating and doing business in the state
#3 – Excise
The tax is charged on those kinds of goods which are not normal goods. These taxes are levied on goods like cigarettes, alcohol which usually comes which excise tax on it. These taxes are paid by the people who produce them or the wholesalers. The tax is basically levied to discourage the impact on the goods
Sales Tax Calculation with Examples
Example #1
XYZ business in operating in the state of Washington in the USA. The state levies of total sales tax of 8% (state tax of 5% + country tax of 3%). The price before the sales tax is $340 for a product. How much the business should collect from the customer?
Example #2
XYZ business in operating in the state of Washington in the USA. The state levies of total sales tax of 10% (state tax of 6% + country tax of 4%). The price before the sales tax is $200 for a product. How much the business should collect from the customer?
Advantages
- The charging of the sales tax results in the additional revenue for the government which in turn helps in the welfare of the country
- It brings equality in the economy because the poor citizen who cannot afford one square meal for them the government makes it possible to give them some financial help
- It is easily collected when looked in the comparison of other income tax or any other tax as it comes and is attached with the price of the goods
Disadvantages
- The structure of this tax is very complex and cumbersome in nature as different states and country have different tax structure and treatment of the tax
- This kind of tax increases the cost of the product and it also leads to double taxation for the citizens of the country
- It is also very regressive in nature as the person who purchases the product needs to pay the tax on the product no matter whether he is rich or poor or any other class
Important Points to Note about Change in Sales tax
- More than 30 countries in the USA have adopted economic nexus policies. Including the two giants California and Texas
- It is being charged on sins such as Tobacco and alcohol
Conclusion
Sales Tax is the type of indirect tax which is levied on the number of sales, considering the exempt and nonexempt supplies, tax is collected from the recipient of goods making it an indirect way of tax collection, and ultimately is paid to the government.
Sales Tax is just one part of the structure and should be considered in the context. It is something that can have an immediate impact on the products and services. Many sales tax as explained above are regressive in nature and it is a burden on the lower-income group.
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