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Sales Tax Overview

Sales Tax Overview State Sales Tax Defined:

•    Sales tax in the United States is a government-enforced and issued levy that is typically viewed as an added cost, placed onto the price of goods or services.

•    The sales tax in the United States is a form of consumption tax, which is delivered as a percentage and placed on the purchase of goods, such as clothing. 

•    The sales tax is collected by local government departments to help fund and deliver public goods to the underlying community.

•     Each state in America contains different rules for applying a sales tax. Some state laws are more advantageous to the taxpayer for certain purchases or transactions. This policy and interpretative contrast is crucial to understand especially if the taxpayer is planning to run a business in a particular state. 

•    Not all goods purchased are met with a sales tax. Typically items that are viewed as necessities, such as food, are not administered with an additional taxation.

•    The sales tax is collected by the merchant of the store or retail shop in which the goods were purchased. Typically, only consumers are charged a sales tax; the levy does not apply to resellers or manufacturers of the goods.

•    As is common with most local laws or taxation models, the percentage of the sales tax as well as the presence of a sales tax, will differentiate based on state interpretation. For instance, sales taxes are levied by every state except: Alaska, Delaware, Montana, New Hampshire and Oregon. Furthermore, the presence of a sales tax and the attached percentage rate may fluctuate at the county or municipal level.

•    The sales tax is a consumption tax that is charged directly at the point of purchase for certain goods and services. The amount of tax is calculated by applying a percentage (instituted by the particular state) rate to the taxable price of the item purchased. A portion of the sales price may be exempt from taxation, however, because the sales tax contains a list of specialized exemptions. 

•    States may either include the tax in the price of the good (known as a tax-inclusive model) or may add the tax to the price of the at the point of sale.

•    The majority of sales taxes are collected from the buyer by the seller; the seller then remits the tax to the underlying government agency. 


Types of Sales Tax

•    The conventional sales tax, known as the retail tax, is charged on the sale of an item to its final end user or consumer. Other types of sales tax include:

•    Gross Receipts Taxes: Sales tax levied on all sales of business. 

•    Use Tax: A levy imposed directly on the consumer of goods who purchase items without a sales tax; this typically refers to items purchased from a vendor in another state and delivered to the purchaser by mail or common carrier.

•    Excise Taxes: A type of sales tax that is applied to only a narrow range of products (i.e. gasoline or alcohol). This type of tax is typically imposed on the producer rather than the retail seller.

•    Securities turnover excise tax: A tax levied on the trade of securities

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