What is Sales Tax?

A sales tax is a type of tax levied on the sale of goods and services to a governing body.

At the point of sale, a standard sales tax is levied, collected by the retailer, and paid to the government. A company is liable for such taxes in a given jurisdiction if it has a nexus there, which can be a physical presence, an employee, an affiliate, or some other type of presence, depending on the laws of that jurisdiction.

Traditional or retail sales taxes are only levied on the final consumer of a good or service. Because the majority of goods in modern economies pass through a number of manufacturing stages, which are frequently handled by different entities, a significant amount of documentation is required to prove who is ultimately chargeable for sales tax. Assume a sheep farmer sells wool to a yarn manufacturing company. To avoid paying tax on sales, the yarn manufacturer must obtain a government resale certificate stating that it is not the end user. The yarn manufacturer then sells its product to a garment manufacturer, who must obtain a resale certificate as well.

Kinds of Sales Tax

Different jurisdictions levy different taxes on sales, which frequently overlap, such as when states, counties, and municipalities levy their own taxes sales. Use taxes, which apply to residents who have purchased items from outside their jurisdiction, are closely related to sales taxes. These are generally set at the same rate as sales taxes, but they are difficult to enforce, so they are only applied to large purchases of tangible goods in practice. A Georgia resident purchasing a car in Florida, for example, would be required to pay the local sales tax, just as if she had purchased it at home.

Sales Varieties

• A common type of sales transaction is the sale of goods and services in a retail market. This type of sale could involve a local business like a grocery store or a laundromat. It could happen in a big box store or a movie theatre.
• Financial services institutions’ sales of investment products are thought to involve more complex value exchanges. They can take place either online or in a physical location.
• Individuals can also sell to one another. For example, at a yard sale.
• The purchase of a vehicle from a car dealership is another example of a more complicated sales transaction involving items of high value.
• Sales can also take place between businesses.