What Are Sales & Use Taxes?
In addition to income tax and business tax, one of the common taxes that most consumers are familiar with is the sales and use tax, sometimes simply referred to as sales tax. Sales and use tax applies to tangible goods. Rates vary by location, but all taxpayers and consumers in a given tax district pay the same sales and use tax rates on their eligible purchases.
Other People Are Reading
-
Definitions
-
Sales and use taxes are consumption taxes that apply to tangible goods at the time of purchase. Sales tax refers to the tax that merchants must charge, and later submit to state tax agencies, when they sell to customers within the state where they operate. Use tax refers to taxes that customers must submit to their home state when they purchase eligible goods from an out-of-state merchant who does not collect sales tax.
Rates and Laws
-
The same tax rate applies to both sales and use taxes in a given tax district. However, sales and use tax rates vary from state to state and change over time. In addition to states, local governments such as counties and cities may impose their own sales and use tax, which applies only within their borders and raises the total sales and use tax rate customers pay there. Some states have laws that prevent such taxes from surpassing a maximum percentage, which limits how much local governments can add to the state's own tax rate.
-
Exemptions
-
Sales and use tax only applies to certain tangible consumer goods. Services are usually exempt from the tax, unless they are services for the installation of tangible items subject to taxation. Shipping and handling charges are also exempt, unless they are included in the purchase price of an item. In most states, unprepared grocery items are exempt from sales tax. States may also authorize temporary exemptions for necessities such as clothes, though local governments can still impose their taxes on these items,
Significance
-
Sales and use tax is a primary source of funding for state and local governments. It has become a major subject of debate and change with the growing popularity of Internet merchants, who lack a physical presence in most states and do not change sales tax for goods that would carry the tax if customers purchased them locally. In these cases, buyers should submit use tax, but this is difficult for states to monitor and enforce.
States with lower sales and use tax rates may have higher income tax rates to provide the necessary revenue. Likewise, states with no personal income tax often rely on a higher sales and use tax to support state and local governments.
-
