Definition of Sales Tax
Common throughout the United States, sales tax is a consumer institution that allows for funds to be collected from basic buying and selling actions in an economy. In the United States, sales tax is a critical source of funding for many states. Collection and usage functions differently from state to state.
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Definition of Sales Tax
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Sales tax is defined as a charge, based on the value of an item being sold, that is levied on the transferal of some form of goods or services from a seller to a buyer. Sales tax is added for each sale, and is in addition to any charges and taxes already present in the sale.
History
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The first time that a national sales tax was proposed was in 1862 during the Civil War as a Union-proposed National Tax. The 1-percent tax was not adopted, and did not re-emerge until after the first World War, when it was suggested again in 1921 as a way to pay off war debts. The tax proposition failed, but in 1921 West Virginia passed a state sales tax, and by 1940 more than 30 states had similar programs due to the successful funds generated by early programs. Today, only five states do not collect sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.
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Variation in State Sales Taxation
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Each state sets its own sales tax rate, increasing and decreasing based on state legislation voted on by residents. Many states charge a sales tax that is consistent across the entire state. Some states, such as California, have a two-tiered sales tax system in which the flat sales tax rate is combined with sales taxes levied by counties and municipalities. Some states allow local residents to vote to instate a special purpose local option sales tax (SPLOST) for a limited time period to fund capital building programs such as road improvements and new schools; when the time period is over, the tax goes away unless voters approve a new SPLOST.
Uses for Sales Tax
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Each state stipulates where it will use the funds collected from sales tax. All funding from sales tax is entered into the state's fund reserve, and depending on policies and budgeting, go to different places. Education, transportation and state government funding are all common destinations for sales tax funds.
Sales Tax and Internet Business
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The Internet Tax Freedom Act was signed into law by President Clinton in 1998, placing a moratorium on taxation of goods and services sold over the Internet. Under the Internet Tax Freedom Act, all levels of government are prohibited from levying any form of tax on sales over the Internet. The act was renewed by George W. Bush, extending the current moratorium until 2014.
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References
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