Tax on Sales

Computing tax on sales of goods is becoming more complicated, especially for online merchants, though tax payers will find it is easier than before to claim sales tax deductions.

Taxes. Taxes. Taxes! Save money on sales tax deductions.

U.S.sales tax is a state or jurisdiction tax that is imposed on most goods and services and charged to the consumer. Merchants collect the tax and provide the monies to the state or municipality.

Taxes on sales vary from state to state or jurisdiction, with some states having none. The revenue generated from tax on sales makes up a significant proportion, 25 to 50 percent, of a state's income and is used to support its infrastructure, from schools to public transit.

Most countries have a tax on sales, or what is known as a Value Added Tax (VAT), which is even more complicated for businesses to compute and process compared to sales tax in the U.S.

States diverge somewhat on taxable items, but most have food exemptions and even more states have prescription drug exclusions. Other necessities may or may not be taxed; California is one example of a state offering many tax exclusions. States such as Connecticut have exemptions on clothing and even Internet service.

The Federation of Tax Administrators maintains a simple state tax table for quick reference. To calculate the tax on sales for your state, try the Sales Tax Clearinghouse and use their online calculator.

It may seem desirable to live in a state free of "sales tax" but often related tax is imposed, such as 'use tax' or excise tax. Tax free states include:

• Alaska
• Delaware
• Hawaii
• Montana
• New Hampshire
• Oregon
• and the District of Columbia

One advantage of purchasing and selling goods on the Internet includes avoiding sales tax on out-of-state sales. However, if you make a sale within your state you may be required to charge a tax on sales, with some exceptions including resellers.

Whether you are an eBay merchant or have an on online storefront, it is critical to adhere to the tax laws of your state. Additionally, many casual eBay sellers will have unexpected federal taxes when their hobby is no longer considered a business by IRS rules. The IRS provides nine indicators that help merchants assess whether online auction sales are considered a business, and thus whether sales tax should be charged.

Resellers, who purchase goods for resale to customers, are typically exempt from tax on sales to avoid double taxation of goods and services. In order to qualify for exemption, resellers must obtain a state sales tax or resale number, a sales tax license or seller's permit.

The sales tax number should not be confused with a federal tax ID number, EIN or other tax number. Contact your state revenue department to find out what the requirements are for your location and business status. Additionally, for resellers to qualify for tax-exempt purchases from various merchants, you must meet the respective requirements by providing valid tax numbers, forms of business identification as well as a reseller agreement.

Additional business entities such as non-profits may also be exempt from a tax on sales, check with your state department of revenue for your tax status.

The good news is that state and local sales tax can be deducted when filing IRS Form 1040. The limitation to this is that one can not claim both state and local tax deduction and the deduction for sales tax, it is an either/or situation.

For poor record-keepers, the news is even better. Sales tax deduction claims can be made even without all of your receipts. To find out how you would fare in sales tax deductions, see the IRS Sales Tax Deduction Calculator.

Government pages change frequently so it is rare to find a Web site with up-to-date links. The 1040.com Web site maintains a decent state revenue department list. Alternatively, you can search Google with the keywords "revenue department" followed by the name of your state.

Currently, Wikipedia provides an excellent state-by-state breakdown of tax rates and exemptions with citations included. Be aware that entries to Wikipedia can be edited by anyone so verify the information with a credible tax authority.

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