What Are Sales Taxes?
While visiting a local furniture store, you spot a $500 desk that's just
perfect for your home office. You whip out your checkbook, write a check for
$500, and the desk is yours. Or is it? As you're probably already aware from
your everyday shopping experiences, you can't always purchase an item priced at
$500 by paying just $500. Rather, in most
states you're likely to pay anywhere from $520 to $550, with the added
amount representing state and local sales taxes.
But what exactly is a "sales" tax? And how, if at all, does your
being a small business owner affect the way you deal with such taxes?
- Identifying a sales tax-
among the states, there are actually several different types of sales tax
systems. The biggest difference is whether the seller or the purchaser is
the main taxpayer. In some states, the tax is imposed on sellers, who then
have the option of passing the tax along to their purchasers. In other
states, the tax is imposed on the purchaser, with the seller being
responsible for collecting the tax and remitting it to the state. And then
there are other states where the liability for the tax is shared by sellers
- Taxable event- the
triggering event for imposing the tax is the consummation of a retail sale.
Initially, the states were content to limit their taxes to retail sales of
tangible personal property. However, in recent years most states have
expanded the scope of their sales taxes to encompass leasing transactions
and at least some services.
- Common exemptions- each retail
sale is presumed to be taxable. Unless a recognized exemption applies and,
in most cases, the purchaser affirmatively establishes his or her right to
claim the exemption, the sales tax must be paid.
the tax- sales taxes are computed on some measure of gross
receipts. In other words, the tax generally applies to the full amount a
seller receives from a purchaser as opposed to the net profit the seller
realizes on the sale.
taxes- a state's sales tax applies only to retail sales that are
consummated within the state. This creates a big loophole from a taxing
state's perspective in that purchasers can avoid the state's sales tax by
making their purchases in other states. To close this loophole, each state
having a sales tax also has a complementary "use" tax that applies
to the storage or other use of tangible personal property or taxable
services in the state.