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.

• 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.

• 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.

• How Taxes Work in the United States

  • Each has its own authority to tax.
  • For example, states can set their own sales and payroll taxes that apply only within the state.
  • Similarly, local governments can impose a variety of taxes, such as property taxes.
  • Federal taxes are created by the US Congress, which passes laws mandating what is taxed and the amount of the tax.
  • Disputes over tax rules are generally heard in the United States Tax Court before the tax is paid, or in a United States District Court or United States Court of Federal Claims after the tax is paid.

• Fiscal Policy -- Budget and Taxes

  • (Local governments, in contrast, generally collect most of their tax revenues from property taxes.
  • State governments traditionally have depended on sales and excise taxes, but state income taxes have grown more important since World War II. )
  • The 1862 tax law also established the Office of the Commissioner of Internal Revenue to collect taxes and enforce tax laws either by seizing the property and income of non-payers or through prosecution.
  • The Tax Reform Act of 1986, perhaps the most substantial reform of the U.S. tax system since the beginning of the income tax, reduced income tax rates while cutting back many popular income tax deductions (the home mortgage deduction and IRA deductions were preserved, however).
  • The Tax Reform Act replaced the previous law's 15 tax brackets, which had a top tax rate of 50 percent, with a system that had only two tax brackets -- 15 percent and 28 percent.

• Supply of Inputs

  • The individual agent who owns the input will decide how much of a factor they want to offer for sale at each price offered for the input.
  • A worker must decide how many units of labour (hours, days, weeks, years, etc) they will offer for sale at each possible wage rate.
  • The supply of labour is a function of the wage rate, the value of leisure, alternatives available, taxes and other circumstances.
  • Generally it is believed that more labour will be offered for sale at higher wage rates, up to a point.
  • The maximum labour that will be offered for sale is at point B.

• Supply Function

  • QXS = fS(PX, PINPUTS, technology, number of sellers, laws, taxes, expectations . . .
  • Supply is a schedule of quantities that will be produced and offered for sale at a schedule of prices in a given time period, ceteris paribus.
  • The relationship between the quantity produced and offered for sale and the price reflects opportunity cost.
  • Generally, it is assumed that there is a positive relationship between the price of the good and the quantity offered for sale.

• Corporate and Payroll Taxes

  • Many countries impose a corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities.
  • The taxes may also be referred to as income tax or capital tax.
  • The effective tax rate is the average corporate tax rate on the company's income and this takes into consideration tax benefits included in a current tax year.
  • Corporations are also subject to a variety of other taxes including: property tax, payroll tax, excise tax, customs tax and value-added tax along with other common taxes, generally in the same manner as other taxpayers.
  • Deductions from an employee's wages are taxes that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax (PAYE), or pay-as-you-go tax (PAYG).

• Comparing Marginal and Average Tax Rates

  • An average tax rate is the ratio of the total amount of taxes paid, T, to the total tax base, P, (taxable income or spending), expressed as a percentage.
  • Broadly, the marginal tax rate equals the change in taxes, divided by the change in tax base, expressed as a percentage.
  • A progressive tax is a tax in which the tax rate increases as the taxable base amount increases .
  • A regressive tax is a tax imposed in such a manner that the average tax rate decreases as the amount subject to taxation increases .
  • A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases.