It is important that our clients adhere to the sales tax implications in all areas. We will gladly help your business by researching or sharing any information needed in order to properly prepare a sales tax return both cost-effectively and timely.
Sales tax is paid to the government for the sale of certain goods and services. The laws usually allow the seller to collect the money for the tax from the consumer at the time that the item was purchased. When the tax is paid to the appropriate governing body by the consumer, it’s often called a “use tax.” The laws will often provide exemption of certain goods and services from sales and use taxes (such as food, education, and medicine). A value-added tax (VAT) can also be collected on goods and services that are related to sales tax.
Types of Sales Tax
Some of the types of sales tax include the following:
- Manufacturer’s Sales Tax — A tax on the sale of goods by manufacturers and producers.
- Wholesale Sales Tax — A tax on the sale of goods by wholesalers when they’re packaged and labeled so it’s ready to be shipped and delivered to consumers.
- Retail Sales Tax — A tax on the sale of retail goods from consumers and industrial users.
- Gross Receipts Tax — This can be levied on all the sales of a particular business, and it has often been criticized because of its “cascading” or “pyramiding” effect (when an item is taxed repeatedly as it moves from production to the final retail sale).
- Excise Tax — This tax only applies to certain types of products (such as gasoline or alcohol), and it’s usually imposed on the producer or wholesaler than on the retailer.
- Use Tax — This is imposed directly on consumers who purchase goods without sales tax. It often applies if an item is purchased from a vendor that’s not under the jurisdiction of the taxing authority (such as in another state). Use tax is usually imposed by states that have a sales tax but are only enforced for the purchase of large items (such as automobiles and boats).
- Value-Added Tax (VAT) — A tax that’s charged on all sales, which avoids the need for a system of resale certificates. It also avoids the problem of cascading taxes, because it’s only applied to the difference (called “value added”) between the price that’s paid by the first purchaser and what is paid by each subsequent purchaser on the same item.
- Turnover Tax — This is similar to sale tax, except that it applies to intermediate and capital goods as an indirect tax.
Most areas in the U.S. and around the world have some type of sales tax or value-added tax at nearly every government level.
The Difference Between Sales Tax and Use Tax
Conventional or retail sales taxes are only charged to the consumer for a specific good or service. Because most of today’s goods pass through a number of manufacturing stages (which are often handled by different entities) a good amount of documentation is needed to prove who is liable for sales tax. Different jurisdictions can change different levels of sales tax. States, counties, and municipalities can also levy sales tax on their own. This can make the purchase price of a single item be different in various locations.
Use taxes are usually set at the same rate as sales tax, but they can be hard to enforce (except when they apply to large purchases of tangible goods). If a resident of Georgia buys a car in Florida, the buyer would be required to pay the sales tax in Georgia as if it was being bought in that state. Comparison shoppers may use the net of tax price to see if purchasing an item in one location is better that buying it in another.
The Difference Between Sales Tax and Value-Added Tax
Sales tax is different from value-added tax, because it’s only collected once. Value-added tax, on the other hand, is collected throughout the production process. The United States is one of the few developed countries that still use conventional sales tax. Many countries outside the U.S. have adopted value-added tax model, where a percentage of the value added on a particular good is taxed at every level of its production all the way to the final sale.
A yarn maker would pay a percentage on the difference between what they charge for the yarn and what they pay for wool, while a clothing manufacturer would pay the same percentage on the difference between what they charge for socks and what they pay for the yarn. It’s a tax that’s imposed on the gross margins of every company instead of imposing it on the final consumer, and its purpose is to avoid double taxation (which can cascade through various levels of production).
If you’re looking for a CPA in Corpus Christi that can help you with your sales tax system, be sure to reach out to Jennings & Hawley.