Sales Tax

Sales tax is a fee added to the price of goods, services and properties purchased through retail transactions. It qualifies as a consumption tax because it is collected from consumers. The taxed amount is a percentage of the product's cost (also known as taxing on an ad valorem basis). The sales tax is determined by the state and the local jurisdiction of the items being sold; the United States does not enforce a national tax. In the U.S., tax rates vary depending upon state and locale, percentages range from 0 percent to 8.7 percent of the purchase price. To find tax rates by state, city, zip code or county visit Online Tax Calculator.

Merchants have the responsibility of collecting and delivering the tax to the collection agency. The merchant imposes the tax depending upon the state’s tax percentage and in some instances an additional amount is imposed on the municipal level. In a retail environment, the full tax amount is always stated as a separate price entity in addition to the price of the goods or services. An exception to this standard policy is the price of gasoline, which includes the sales tax amount within its price per gallon.

Excise taxes are placed on specific goods and services as well, depending upon the nature of the item being sold. The government charges merchants or manufacturers an excise tax on some products, and in turn, the consumer pays the additional cost. Gasoline and cigarettes are two examples of products requiring the additional excise tax.

Consumer purchases and rentals of property, goods or services are subject to a tax amount mandated by the state and possibly by the local district as well. The retail transaction on the final good and/or service is the only taxable product.

Goods or services purchased while a consumer is out of their tax jurisdiction, through mail deliveries or orders, over the telephone and over the internet do not assess a tax. These items do, however, incur a “use tax.” The use tax term is further described in the “Important Tax Terms” portion of this article.

Eligibility for a tax exemption requires a tax exemption certificate and must be government approved. Individual product exemptions vary by state and jurisdiction. Non-profit organizations, government agencies, resellers, small businesses, minority owned businesses are examples of possible candidates for tax exemption.

• Use tax: Fee incurred by the employ and/or personal purchase of goods, services or property. Products and services that are considered “tax free” are subject to use tax in order to prevent the evasion of other applicable taxes. The use tax makes that tax-free purchases made outside of a consumer’s taxable jurisdiction subject to a separate fee reflecting the amount that would have otherwise been taxed. The use tax is also levied on public services that assist and append different types of public property. Some examples include: the price of docking a boat, vehicle licenses and airport vehicle storage.

• Transactions/turnover tax: A turnover tax is an indirect fee imposed according to the production process, intermediate manufacturing of items and capital goods.

• Value added tax (VAT): The VAT is placed on goods during and throughout the production process as it transitions from initial item to final product. Each stage of manufacturing an item is subject to a value added tax.

• Ad valorem: Describes a particular type of tax, where the taxed amount is based upon the price of the good, service or property being assessed.

Sales tax is an ad valorem tax assessed on all goods, services and property purchased. In the United States, the tax amount is mandated by each individual state, and some local jurisdictions. The tax affects the final product sold through a retail transaction, while the merchant who sells the service, product or property is responsible for the collecting applicable taxes and delivering the moneys to the collection agency. Exemptions are available for qualifying companies, individuals or corporations after filing for possible eligibility by filling out and delivering the exemption certificate.

Written by Christina Freeman

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