Sales Tax: Mastering Sales Tax, Navigating the Financial Landscape

By Fouad Sabry

What is Sales Tax

A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Sales tax

Chapter 2: Tax

Chapter 3: Goods and services tax (Canada)

Chapter 4: List price

Chapter 5: Fuel tax

Chapter 6: FairTax

Chapter 7: Excise tax in the United States

Chapter 8: Ad valorem tax

Chapter 9: Use tax

Chapter 10: Indirect tax

Chapter 11: Duty-free shop

Chapter 12: Sales taxes in the United States

Chapter 13: VAT-free imports from the Channel Islands

Chapter 14: Tax-free shopping

Chapter 15: Gross receipts tax

Chapter 16: Excise

Chapter 17: European Union value added tax

Chapter 18: Taxation of digital goods

Chapter 19: Taxation in the United Arab Emirates

Chapter 20: Marketplace Fairness Act

Chapter 21: Value-added tax

(II) Answering the public top questions about sales tax.

(III) Real world examples for the usage of sales tax in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of Sales Tax.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Jan 20, 2024

Book preview

Chapter 1: Sales tax

A sales tax is a tax paid to a government entity on the sale of specific goods and services. Generally, laws permit the seller to collect tax payments from the consumer at the point of sale.

Federal Sales Taxes

When a tax on goods or services is paid directly to a governing body by the consumer, it is commonly referred to as a use tax. Frequently, laws exempt certain goods or services, such as food, education, and medicines, from sales and use tax. A value-added tax (VAT) is similar to a sales tax in that it is imposed on goods and services. See Sales tax comparison for key differences.

Cash register receipt showing sales tax of 8.5%

Conventional or retail sales tax is imposed on the sale of a product to its final end-user and is levied each time the product is sold at retail. Sales to businesses that resell the items are exempt from tax. A non-end-user purchaser is typically issued a resale certificate by the taxing authority and is required to present the certificate (or its ID number) to the seller at the time of purchase, along with a statement that the item is intended for resale. Without such a certificate, the tax is charged on each item sold to purchasers who fall under the taxing authority's jurisdiction.

Other sales taxes, or comparable taxes:

Tax on manufacturers' and producers' sales of tangible personal property

Wholesale sales tax, a tax on wholesale sales of tangible personal property that is ready for shipment or delivery to end users and consumers.

A tax on the retail sale of tangible personal property to final consumers and industrial users.

Gross receipts taxes are levied on a company's total sales. They have been criticized for their cascading or pyramiding effect, in which a product is taxed multiple times between production and final retail sale.

Excise taxes on a limited number of products, such as gasoline or alcohol, are typically levied on the manufacturer or wholesaler rather than the retailer.

Use tax is imposed directly on the consumer of goods purchased without sales tax, typically items purchased from a vendor not subject to the taxing authority's jurisdiction (such as a vendor in another state). States with a sales tax commonly impose use taxes, but they are typically enforced only on large items such as automobiles and boats.

The securities turnover tax is a tax on the trading of securities.

Value-added tax (VAT), in which tax is charged on all sales, eliminates the need for a resale certificate system. Applying tax only to the difference (value added) between the price paid by the first purchaser and the price paid by each subsequent purchaser of the same item prevents tax cascading.

FairTax is a proposed federal sales tax that would replace the federal income tax in the United States.

Similar to a sales tax, but applied as an indirect tax to intermediate and possibly capital goods. It is 9.5 percent in Los Angeles, which is 7.25 percent state and 2.25 percent county.

The California sales tax consists of various state, county, and municipal taxes. The state imposes a tax on all retailers for the privilege of selling tangible personal property at retail. Consumers are required to report these purchases in conjunction with their annual state income tax return, but this is uncommon. The exception is the purchase of automobiles from out-of-state. The state then collects use tax as part of California vehicle registration.

The trend has been toward replacing conventional sales taxes with broader-based value-added taxes. Value-added taxes account for approximately 20% of global tax revenue and have been adopted by more than 140 countries. The United States is now one of only a handful of nations with conventional sales taxes.

The application of sales tax to online purchases operates differently. In general, there are four types of electronic commerce: intermediaries, retail, business-to-business, and media. The consumer response to sales tax affects all four types. Despite the fact that consumers are technically required to pay sales tax on interstate transactions, it is impossible to enforce this requirement. Therefore, online retailers have a distinct advantage in that they are not required to collect sales tax. This has prompted numerous economists to investigate consumer sensitivity to sales taxes. While some researchers have found a high elasticity of online purchase probability in relation to sales tax (approximately 2.3), others have discovered lower figures (approximately 0.5). Thus, the enforcement of an online sales tax would have minimal effects on total sales.

OECD economists studied the effects of various types of taxes on the economic growth of developed nations and determined that sales taxes are one of the least harmful taxes for growth. According to Investopedia, a regressive tax consists of: A tax that levies a greater proportion of low-income individuals than high-income individuals. Generally, a regressive tax is one that is applied uniformly. This implies that it impacts lower-income individuals more severely..

It has been demonstrated that higher sales taxes have numerous effects on local economies. With higher taxes, consumers are beginning to reconsider where they shop. If local sales taxes are too high, consumers will shop in other areas.

Every state with a sales tax law in the United States has a use tax component that applies to purchases made from out-of-state mail order, catalog, and e-commerce vendors, a category also known as remote sales..

Consumption taxes may also have an impact on businesses engaged in electronic commerce. It can be classified as retail, intermediaries, business-to-business, and media (Goldfarb 2008). These classes were affected to differing degrees. The intermediaries were subject to the retail sales tax because they serve as transitional platforms between different parties (such as the Amazon marketplace). Depending on whether the transaction will be taxed in the United States, different circumstances will apply to Business-to-Business transactions. Typically, electronic commerce products are not taxed uniformly, particularly in the United States. Various states have their own sales tax regulations; for instance, some states apply their standard sales tax law to digital goods, while others have enacted specialized laws. It is difficult to enforce taxes on electronic commerce, particularly for cross-border transactions of digital goods.

A sales tax has a significant impact on consumer and producer behavior. The price elasticity of demand for online products is high, indicating that consumers are sensitive to price changes and that their demand will change significantly in response to small price changes. This means that the majority of the tax burden falls on the producer. To avoid altering demand, the producer will either avoid the tax if possible by relocating their fulfillment centers to areas with a low sales tax, or they will internalize the cost of the sales tax by maintaining the same price for consumers but deducting the tax from their profits.

On the walls of ancient Egyptian tombs dating as far back as 2000 B.C., a tax on the sale of goods is depicted. These paintings depict the taxation of specific commodities, including cooking oil.

In the year 6 A.D., the Roman emperor Augustus collected funds for his military aerarium through the centesima rerum venalium, a one percent general sales tax (hundredth of the value of everything sold).

Although the United States government has never implemented a general sales tax, the whiskey excise tax enacted in 1791 was one of its earliest efforts to raise revenue. In 1794, this tax's unpopularity among farmers on the western frontier led to the Whiskey