|An aspect of fiscal policy|
A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a governing body directly by a consumer, it is usually called a use tax. Often laws provide for the exemption of certain goods or services from sales and use tax. A value-added tax (VAT) collected on goods and services is similar to a sales tax.
Conventional or retail sales tax is levied on the sale of a good to its final end user and is charged every time that item is sold retail. Sales to businesses that later resell the goods are not charged the tax. A purchaser who is not an end user is usually issued a "resale certificate" by the taxing authority and required to provide the certificate (or its ID number) to a seller at the point of purchase, along with a statement that the item is for resale. The tax is otherwise charged on each item sold to purchasers without such a certificate and who are under the passport card jurisdiction of the taxing authority.
Other types of sales taxes, or similar taxes
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, especially in Scandinavia, have some of the world's highest valued-added taxes. Norway, Denmark and Sweden have higher VATs at 25%, Hungary has the highest at 27% although reduced rates are used in some cases, as for groceries, art, books and newspapers.
In some jurisdictions of the United States, there are multiple levels of government which each impose a sales tax. For example, sales tax in Chicago (Cook County), 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%).
For Baton Rouge, Louisiana, the tax is 9.45%, which is 4.45% state & 5% local.In Los Angeles it is 9.5%, which is 7.25% state & 2.25% county.
In California, sales taxes are made up of various state, county and city taxes. The state tax is "imposed upon all retailers" for the "privilege of selling tangible personal property at retail".Strictly speaking, only the retailer is responsible for the payment of the tax; when a retailer adds this tax to the purchase price, the consumer is merely reimbursing the retailer by contractual agreement. When consumers purchase goods from out-of-state (in which case the seller owes no tax to California) the consumer is required to pay a "use tax" identical to the sales tax. Use tax is levied upon the "storage, use, or other consumption in this state of tangible personal property". Consumers are responsible for declaring these purchases in the same filing as their annual state income tax, but it is rare for them to do so. An exception is out-of-state purchase of automobiles. Then, use tax is collected by the state as part of registering the vehicle in California.
The trend has been for conventional sales taxes to be replaced by more broadly based value-added taxes. Value -added taxes provide an estimated 20% of worldwide tax revenue and have been adopted by more than 140 countries. The United States is now one of the few countries to retain conventional sales taxes.
Economists at the Organisation for Economic Co-operation and Development studied the effects of various types of taxes on the economic growth of developed nations within the OECD and found that sales taxes are one of the least harmful taxes for growth.
Because the rate of a sales tax does not change based on a person's income or wealth, sales taxes are generally considered regressive. However, it has been suggested that any regressive effect of a sales tax could be mitigated, e.g., by excluding rent, or by exempting "necessary" items, such as food, clothing and medicines.Investopedia defines a regressive tax as "[a] tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder".
Higher sales taxes have been shown to have many different effects on local economies. With higher taxes, more consumers are starting to reconsider where they shop,according to a study conducted in Minnesota and Wisconsin, where the sales tax was raised on cigarettes. Effects of higher sales tax were not shown immediately in sales, but about six months after the taxes were raised. High sales taxes can be used to relieve property taxes but only when property taxes are lowered subsequently. Studies that have shown this correlation were conducted in Georgia by cities raising sales tax and lowering property taxes. To combat sales loss, a city must be able to import consumers to buy goods locally. If local sales taxes are too high, consumers will travel to other areas to purchase goods.
In the United States, every state with a sales tax law has a use tax component in that law applying to purchases from out-of-state mail order, catalog and e-commerce vendors, a category also known as "remote sales".As e-commerce sales have grown in recent years, noncompliance with use tax has had a growing impact on state revenues. The Congressional Budget Office estimated that uncollected use taxes on remote sales in 2003 could be as high as $20.4 billion. Uncollected use tax on remote sales was projected to run as high as $54.8 billion for 2011.
Enforcement of the tax on remote sales, however, is difficult. Unless the vendor has a physical location, or nexus, within a state, the vendor cannot be required to collect tax for that state.This limitation was defined as part of the Dormant Commerce Clause by the Supreme Court in the 1967 decision on National Bellas Hess v. Illinois. An attempt to require a Delaware e-commerce vendor to collect North Dakota tax was overturned by the court in the 1992 decision on Quill Corp. v. North Dakota. A number of observers and commentators have argued, so far unsuccessfully, for a Congressional adoption of this physical presence nexus test.
The Internet Tax Freedom Act of 1998 established a commission to study the possibility of internet taxation, but the commission did not make any formal recommendations. In a report issued in 2003, the Congressional Budget Office warned of the economic burden of a "multiplicity of tax systems, particularly for smaller firms".
In an effort to reduce the burden of compliance with the tax laws of multiple jurisdictions, the Streamlined Sales Tax Project was organized in March 2000. Cooperative efforts in this project by 44 state governments and the District of Columbia eventually produced the Streamlined Sales and Use Tax Agreement in 2010.This agreement establishes standards necessary for simplified and uniform sales tax laws. As of December 2010, 24 states had passed legislation conforming with the agreement. Whether the Streamlined Sales Tax can actually be applied to remote sales ultimately depends upon Congressional support, because the 1992 Quill v. North Dakota decision determined that only the U.S. Congress has the authority to enact interstate taxes.
Electronic commerce business can also be affected by consumption taxes.It can be separated into four categories: retail. intermediaries, business-to-business and media (Goldfarb 2008). These categories were affected varying degrees. The intermediaries was affected by the retail sales tax since it provide platforms for transitions between different parties (such as the Amazon marketplace). Business-to-Business transactions will be placed in different circumstances by whether the case will be taxed in the USA. Electronic commerce goods are usually not taxed the same especially across the stats in the USA. Different states has their own sales tax regulation, for example, some states use their standard sales taxes law for the digital goods, and some of the states have specific laws for them. It is difficult to enforce the taxes on electronic commerce especially for digital goods that trade across different countries.
The effect that a sales tax has on consumer and producer behavior is rather large. The price elasticity of demand for online products is high, meaning that consumers are price sensitive and their demand will significantly change with small changes in price. This means that the tax burden lies primarily with the producer. To avoid altering demand, the producer will either avoid the tax if possible by location their fulfillment centers in areas without a high sales tax or they will internalize the cost of the sales tax by charging consumers the same price but paying for the tax from their profits.
A tax imposed on the sale of goods is depicted on the walls of ancient Egyptian tombs, which have been dated as far back as 2000 BC. These paintings describe the collection of tax for specific commodities, such as cooking oil.
Sales tax amounts, measured in drachmas at a rate of one percent, were recorded in a separate column of a record prepared for the auction of 16 slaves in Piraeus, Greece in 415 BC.Nearby Athens collected duties on the import and export of commodities, recorded at a rate of two percent in 399 BC. At that period of time, Athens did not rely on government agencies to collect its taxes; the responsibility was delegated to the highest bidder, a practice known as tax farming.
The Roman emperor Augustus collected funds for his military aerarium in AD 6 with a one percent general sales tax, known as the centesima rerum venalium (hundredth of the value of everything sold).The Roman sales tax was later reduced to a half percent (ducentesima) by Tiberius, then abolished completely by Caligula.
Although the United States government has never used a general sales tax, an excise tax on whiskey enacted in 1791 was one of its first fund raising efforts. The unpopularity of this tax with farmers on the western frontier led to the Whiskey Rebellion in 1794.
Federal and state sales taxes in the United States remained selective, rather than general, through the 19th century. However, excise taxes were applied to so many specific commodities during the Civil War that they functioned collectively as a general sales tax.
The first broad-based, general sales taxes in the United States were enacted by Kentucky and Mississippi in 1930, although Kentucky repealed its sales tax in 1936.
The federal government's per-gallon tax of gasoline (beginning at .01 cent per gallon in 1932) and per-package tax of cigarettes ($1.01 per package since 2009) are the most well-known current sales taxes administered by the federal government.
Twenty-two other states began imposing general sales taxes later in the 1930s, followed by six in the 1940s and five in the 1950s. Kentucky re-enacted its sales tax law in 1960. Eleven more states enacted sales tax laws during the 1960s, with Vermont as the last in 1969. Only five states currently do not have general sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon.
The 2010 health care reform law imposed a 10 percent federal sales tax on indoor tanning services, effective July 1, 2010. Unlike previous federal excise taxes, this tax is collected directly from the consumer by the seller and based on the sale price rather than a quantity. However, the new tax is selective rather than general, applying only to a specific service.
Canada uses a value-added federal Goods and Services Tax (GST) with a rate of 5 percent, effective since January 1, 2008. Every province in Canada except Alberta has either a Provincial Sales Tax (PST) or the Harmonized Sales Tax (HST), which is a single, blended combination of the GST and PST.
Businesses can reduce the impact of sales tax for themselves and their customers by planning for the tax consequences of all activities. Sales tax reduction or mitigation strategist can include the following:
In the United States, online retailers without physical presence in a given state may ship goods to customers there without collecting that state's sales tax because as of 2011, there is no federal sales tax. Amazon.com has been criticized for not collecting sales tax and has intentionally disaffiliated itself from businesses in certain states to continue doing so legally.
A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC.
The goods and services tax (GST) is a multi-level value added tax introduced in Canada on January 1, 1991, by then-Prime Minister Brian Mulroney and his finance minister Michael Wilson. The GST replaced a hidden 13.5% manufacturers' sales tax (MST); Mulroney claimed the GST was implemented because the MST was hindering the manufacturing sector's ability to export competitively. The introduction of the GST was very controversial. The GST rate is 5%, effective January 1, 2008. The GST raised 11.7% of total federal government revenue in 2017-18.
The list price, also known as the manufacturer's suggested retail price (MSRP), or the recommended retail price (RRP), or the suggested retail price (SRP), of a product is the price at which the manufacturer recommends that the retailer sell the product. The intention was to help standardize prices among locations. While some stores always sell at, or below, the suggested retail price, others do so only when items are on sale or closeout/clearance.
A fuel tax is an excise tax imposed on the sale of fuel. In most countries the fuel tax is imposed on fuels which are intended for transportation. Fuels used to power agricultural vehicles, and/or home heating oil which is similar to diesel are taxed at a different, usually lower rate. The fuel tax receipts are often dedicated or hypothecated to transportation projects so that the fuel tax is considered by many a user fee. In other countries, the fuel tax is a source of general revenue. Sometimes, the fuel tax is used as an ecotax, to promote ecological sustainability. Fuel taxes are often considered regressive taxes.
Excise tax in the United States is an indirect tax on listed items. Excise taxes can be and are made by federal, state and local governments and are not uniform throughout the United States. Some excise taxes are collected from the producer or retailer and not paid directly by the consumer, and as such often remain "hidden" in the price of a product or service, rather than being listed separately.
An ad valorem tax is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT). An ad valorem tax may also be imposed annually, as in the case of a real or personal property tax, or in connection with another significant event. In some countries a stamp duty is imposed as an ad valorem tax.
A tax holiday is a temporary reduction or elimination of a tax. It is synonymous with tax abatement, tax subsidy or tax reduction. Governments usually create tax holidays as incentives for business investment. Tax holidays have been granted by governments at national, sub-national, and local levels, and have included income, property, sales, VAT, and other taxes. Some tax holidays are extra-statutory concessions, where governing bodies grant a reduction in tax that is not necessarily authorized within the law. In developing countries, governments sometimes reduce or eliminate corporate taxes for the purpose of attracting foreign direct investment or stimulating growth in selected industries.
A use tax is a type of tax levied in the United States by numerous state governments. It is essentially the same as a sales tax but is applied not where a product or service was sold but where a merchant bought a product or service and then converted it for its own use, without having paid tax when it was initially purchased. Use taxes are functionally equivalent to sales taxes. They are typically levied upon the use, storage, enjoyment, or other consumption in the state of tangible personal property that has not been subjected to a sales tax.
An indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax. The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax, which is collected directly by government from the persons on whom it is imposed. Some commentators have argued that "a direct tax is one that cannot be charged by the taxpayer to someone else, whereas an indirect tax can be."
Goods and Services Tax (GST) is a value-added tax or consumption tax for goods and services consumed in New Zealand.
Tax revenue is the income that is gained by governments through taxation. Taxation is the primary source of income for a state. Revenue may be extracted from sources such as individuals, public enterprises, trade, royalties on natural resources and/or foreign aid. An inefficient collection of taxes is greater in countries characterized by poverty, a large agricultural sector and large amounts of foreign aid.
Sales taxes in the United States are taxes placed on the sale or lease of goods and services in the United States. Sales tax is governed at the state level and no national general sales tax exists. Forty-five states, the District of Columbia, the territories of the Puerto Rico, and Guam impose general sales taxes that apply to the sale or lease of most goods and some services, and states also may levy selective sales taxes on the sale or lease of particular goods or services. States may grant local governments the authority to impose additional general or selective sales taxes.
Tax-free shopping (TFS) is the buying of goods in a foreign country and obtaining a refund of the sales tax which has been collected by the retailer on those goods. The sales tax may be variously described as a sales tax, goods and services tax (GST), value added tax (VAT), or consumption tax.
An excise or excise tax is any duty on manufactured goods which is levied at the moment of manufacture, rather than at sale. Excises are often associated with customs duties ; customs are levied on goods which come into existence – as taxable items – at the border, while excise is levied on goods which came into existence inland.
The European Union value-added tax is a value added tax on goods and services within the European Union (EU). The EU's institutions do not collect the tax, but EU member states are each required to adopt a value added tax that complies with the EU VAT code. Different rates of VAT apply in different EU member states, ranging from 17% in Luxembourg to 27% in Hungary. The total VAT collected by member states is used as part of the calculation to determine what each state contributes to the EU's budget.
Digital goods are software programs, music, videos or other electronic files that users download exclusively from the Internet. Some digital goods are free, others are available for a fee. The taxation of digital goods and/or services, sometimes referred to as digital tax and/or a digital services tax, is partially governed by a federal statute and has been the area of significant state legislative and rule-making activity. The digital tax is gaining popularity across the globe, as the result almost 50 jurisdictions have made changes in their current legislation regarding the taxation to include the digital tax, or presented new laws focused on taxation of digital economy.
In the United Kingdom, the value-added tax was introduced in 1973, replacing Purchase Tax, and is the third-largest source of government revenue, after income tax and National Insurance. It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994.
VAT was introduced value added tax (VAT) into the Indian taxation system from 1 April 2005. The existing general sales tax laws were replaced with the Value Added Tax Act (2005) and associated VAT rules.
The Marketplace Fairness Act is proposed legislation pending in the United States Congress that would enable state governments to collect sales taxes and use taxes from remote retailers with no physical presence in their state. Identical versions were introduced into both the United States House of Representatives and the United States Senate during the 113th United States Congress. During the previous, 112th Congress, a bill was considered but expired without enactment.
A value-added tax (VAT), known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. Like an income tax, it is based on the increase in value of a product or service at each stage of production or distribution. However, a VAT is collected by the end retailer and is usually a flat tax, and is therefore frequently compared to a sales tax.