sales tax

Examples of sales tax in the following topics:

• Financing State and Local Government

  • Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.
  • State taxes are generally treated as a deductible expense for federal tax computation.
  • Sales taxes are imposed by most states on the retail sale price of many goods and some services.
  • Sales tax rates also vary widely among jurisdictions, from 0% to 16%, and may vary within a jurisdiction based on the particular goods or services taxed.
  • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.

• Other Current Liabilities: Sales Tax, Income Tax, Payroll, and Customer Advances

  • Other current liabilities reported on the balance sheet are sales tax, income tax, payroll, and customer advances (deferred revenue).
  • The sales and use tax is a tax paid to a governing body by a seller for the sales of certain goods and services.
  • The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale.
  • Sales tax payable can be accrued on a monthly basis by debiting sales tax expense and crediting sales tax payable for the tax amount applicable to monthly sales.
  • The sales tax payable account is reported in the current liability section of the balance sheet until the tax is paid.

• Individual Taxes

  • Indirect taxes, such as sales or value-added tax, are imposed only when a taxable transaction occurs.
  • Sales tax is an indirect tax levied on the state level, including taxes on retail sale, lease and rental of goods, as well as some services.
  • Sales tax is calculated as the purchase price times the appropriate tax rate.
  • Nearly all jurisdictions provide numerous categories of goods and services that are exempt from sales tax or taxed at a reduced rate.
  • This graph shows the effective sales tax rates for the 50 states.

• What Taxes Do

  • Taxes are most readily understood from the perspective of income taxes or sales tax, although there are many other types of taxes levied on both individuals and firms.
  • Sales taxes are borne by the consumer when s/he purchases certain goods.
  • Sales tax is a form of regressive taxation; the liability is based on the percentage of income consumed, which is higher for low income earners.
  • As a result, individuals earning a relatively lower income will pay a higher proportion of income in the form of sales tax, defining the regressive nature of the tax.
  • Though a general revenue source, sales taxes are also used to modify behavior.

• The Federal Tax System

  • These include taxes on income, payroll, property, sales, imports, estates and gifts, as well as various fees.
  • State taxes are generally treated as a deductible expense for federal tax computation.
  • Sales taxes are imposed on the retail price of many goods and some services by most states and some localities.
  • Sales tax rates vary widely among jurisdictions, from 0% to 16%, and may vary within a jurisdiction based on the particular goods or services taxed.
  • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.

• Taxes

  • Examples of an indirect tax include sales tax and VAT (value added tax).
  • Although a regressive tax system is never explicitly used, some claim a sales tax is a type of regressive tax.
  • Since high income earners spend a lower proportion of their income on goods and services in comparison to low income earners, the rich tend to pay proportionally less sales tax.
  • Both are generally assessed on the sale of goods.
  • Categorize types of taxes into ad valorem taxes and excise taxes

• Financing the US Government

  • For example, income taxes due to their progressive nature are used to equitably derive revenue by differentiating tax rates by income strata.
  • The following is a list of taxes in common use by governmental authorities:
  • Excise tax: tax levied on production for sale, or sale, of a certain good.
  • Sales tax: tax on business transactions, especially the sale of goods and services.
  • Capital gains tax: tax on increases in the value of owned assets.

• Tax Rate

  • The tax rate is the amount of tax expressed as a percentage.
  • In a tax system, the tax rate describes the ratio at which a business or person is taxed .
  • An income tax could have multiple statutory rates for different income levels, whereas a sales tax may have a flat statutory rate.
  • An average tax rate is the ratio of the amount of taxes paid to the tax base (taxable income or spending).
  • To calculate the average tax rate on an income tax, divide the total tax liability by the taxable income.

• Introduction to Taxes and Legislation

  • When setting a tax, the idea is to match price with cost.
  • Unfortunately, the cost of what's heavily taxed, what's minimally taxed, and what's not taxed sometimes doesn't square up.
  • For example, a chemical that sells for $20 per kilo may be subject to minimal taxes to encourage sales on an industrial scale, but what is the chemical's true cost when it makes its way into water, food supplies and human bodies?
  • Taxes also carry the potential to discourage the sale of the items or activities being taxed (which is why high taxes are often placed on alcohol and tobacco).
  • Equally as mind-boggling is the fact that the more a person works the more taxes he or she pays (in the USA alone, two-thirds of personal income tax – which constitutes 80% of the tax funds raised by the US government – is derived from the sale of labour).

• Tax Loopholes and Lowered Taxes

  • Tax evasion is the term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means.
  • Tax avoidance is the legal utilization of the tax regime to one's own advantage, to reduce the amount of tax that is payable by means that are within the law.
  • The term tax mitigation's original use was by tax advisors as an alternative to the pejorative term tax avoidance.
  • Both tax avoidance and evasion can be viewed as forms of tax noncompliance, as they describe a range of activities that are unfavorable to a state's tax system.
  • These include taxes on income, payroll, property, sales, imports, estates, and gifts, as well as various fees.