Difference between revisions of "Sales tax" - New World Encyclopedia

Revision as of 02:58, 12 May 2008

A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There are usually a list of exemptions. The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).

Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, and is simple to calculate and simple to collect. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business who purchases materials for production or ordinary operating expenses prior to delivering a service or product to the marketplace. This prevents so-called tax "cascading" or "pyramiding," in which an item is taxed more than once as it makes its way from production to final retail sale.

Sales Taxes consist of two types: excise and general sales. The excise tax is placed on specified commodities and may be at specific rates or on an ad valorem basis. The general sales tax may be a manufacturers' excise tax, a retail sales tax paid by consumers, a "gross income" tax applied to sales of goods and provision of services, or a "gross sales" tax applied to all sales of manufacturers and merchants.

History of Sales Taxes ( in US and Canada )

During the nineteenth century several states adopted tax levies resembling sales taxes. The sales tax in its modern form was first adopted by West Virginia in a gross sales tax in 1921. During the 1930s, many states adopted the sales tax in its various forms as a replacement for the general property tax that had been their chief source of income.

The adoption of sales taxation slowed somewhat during the 1940s, but became more popular after World War II. At the end of 1971, forty-five states and the District of Columbia levied a sales tax in some form.

A corollary of the sales tax is the use tax. This is a charge levied on taxable items bought in a state other than the state of residence of the purchaser for the privilege of using the item in the state of residence. The rate structure is the same as that of the sales tax. Automotive vehicles are the most significant item in the yield of use taxes.

The rate structure used in the general sales tax is proportional; that is, the rate is constant as the base increases. For ease of administration and determination of the tax due, bracketing systems have been adopted by nearly all states. The rates in use in the mid-1970s varied from 2 percent to a high of 7 percent; 4 percent was the most common rate.

A combination of state and local rates may exceed 7 percent. A selective sales tax applying to a single commodity may have much higher rates. At the time of initial adoption of many of the sales taxes in the 1930s, tokens were used for the collection of the tax on small sales where the tax was less than one cent. Ohio used stamps to show that the tax had been collected. Nearly all these systems have been abandoned in favor of collection of the tax in full-cent increments.

Several forms of sales taxes have been used abroad. Canada has used a manufacturers' excise in the belief that a levy at that level of the distribution process offers fewer administrative problems because of the small number of business units with which to deal. The value-added tax has been extensively used in Europe and has been adopted by the European Economic Community nations as a major revenue source with the goal of uniform rates within each member nation. During the 1950s and early 1960s, Michigan used a business receipts tax that was an adaptation of the value-added tax.

Specific sales taxes on selected commodities have long been used by the states. Selective sales taxes were used in the colonial period, with liquor the most frequently taxed commodity.

Gasoline was selectively taxed by Oregon in 1919. The disadvantage of specific sales taxes is that they do not produce the revenues a general sales tax does.

During World War II a national sales tax was proposed, but no action was taken by Congress. The proposal has been revived periodically, but changes in personal and corporate income taxes have been preferred over a national sales tax.

A great deal of attention is given to the regressive effect of the sales tax because an individual with a low income spends a greater portion of his or her income on consumption goods that are taxed than do those with higher incomes. When the necessities of food and clothing are excluded from the sales-tax base, the regressive effect is reduced.

The impact of sales taxes is on the seller, for in nearly all cases he makes the payment to the state.

However, the incidence or final resting place of the tax burden is on the purchaser of the taxed commodity or service; the price increases or the price is constant, but the tax is stated separately on the sales slip and added to the sum collected from the purchaser. In fact, the laws of some states require forward shifting of the tax to the consumer.

In the late twentieth century, sales taxes became a preferred method of paying for publicly funded sports stadiums and arenas. A growing chorus of critics has argued that the use of sales taxes to finance professional sports facilities is tantamount to corporate welfare. They point out that the biggest financial beneficiaries of such facilities are the wealthy owners of professional sports franchises, who typically gain a controlling interest in the stadium's ownership.

Nevertheless, sales taxes remain a popular way for state legislatures to avoid raising income tax rates, which usually alienate voters more than sales taxes do.

Streamlined Sales Tax in the US

The Streamlined Sales Tax (SST) program is a cooperative arrangement among state governments in the United States for the collection and payment of retail sales taxes when the seller and the purchaser are located in different tax jurisdictions.

Until recently, sales tax did not apply to retail purchases made by a buyer located in a different state than the seller. The main reason was difficulty enforcing and collecting sales taxes among multiple jurisdictions. This was not considered a serious problem until the proliferation of Internet-based sales during the 1990s.

As increasing numbers of buyers made remote purchases using e-commerce in states other than their state of residency, state governments experienced revenue losses because such purchases were not taxed.

While the use of toll-free telephone numbers and direct mail has always caused some loss of tax revenue for states, the e-commerce boom motivated state governments to work together to find a way to recover lost tax revenue. The multi-state agreement, drafted by representatives from 44 states and the District of Columbia, was named the Streamlined Sales and Use Tax (SSUT).

In October 2005, SSUT officially went into effect. As of April 2008, there are 21 states in compliance, (Arkansas, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, West Virginia, and Wyoming), collecting tax revenue through the program.

Provincial Sales Tax in Canada

The Provincial Sales Tax, commonly referred to as PST, is a a provincial tax imposed on the consumers of most goods and particular services in a particular province.

Because the PST is administered by each province and territory, the provincial sales tax goes by many other names, from the Retail Sales Tax (RST) in Ontario and Manitoba through the Social Service Tax in B.C.. In Nova Scotia, New Brunswick, and Newfoundland and Labrador, the PST is part of the HST (Harmonized Sales Tax), effectively combining the PST and GST.

The PST rate also varies from province to province and is even calculated differently.

Any business that sells products and many businesses that provide services need to register for, collect and remit the PST or RST ( except in Alberta, Yukon, Nunavut, or the Northwest Territories where there are no provincial sales taxes ).

Sales tax around the world

VAT remains a major source of tax income for most of the European Union, Mexico and other countries which charge on average a 15-25% VAT rate.

Most countries in the world have sales taxes or value-added taxes at all or several of the national, state, county or city government levels. Countries in western Europe, especially in Scandinavia have some of the world's highest valued-added taxes. Norway, Denmark and Sweden have the highest VATs at 25%, although reduced rates are used in some cases, as for groceries and newspaper.

Sales tax in the world

This is a list of tax rates around the world. It is focused on: value added taxes (VAT)and/or good and services taxes (GST). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

Country	VAT / GST / Sales
Austria	20% GST
Bangladesh	4-15%
Belarus	10/18%
Belgium	21%
Brazil	17-25%
Bulgaria	20%
People's Republic of China	17%
Colombia	16%
Croatia	22%
Czech Republic	19%
Denmark	25%
Estonia	18%
Finland	22%
France	19.6%
Germany	19%
Greece	19%
Hungary	20%
India	12.5%
Ireland	21%
Israel	15.5%
Italy	20%
Luxembourg	15%
Mexico	15%
Monaco	19.6%
Netherlands	19%
New Zealand	12.5% GST
Norway	25%
Pakistan	15%
Poland	22%, 7% (reduced rate on certain goods)
Portugal	21%
Romania	19%
Russia	18%
Slovakia	19%
Spain	16%
Switzerland	3.6/2.4/7.6%
Turkey	18%
Ukraine	20%
United Kingdom	17.5%
Uruguay^[1]	23%
Venezuela^[1]	8-10%/9%
Zambia^[2]	17.5%

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@@ Line 77: / Line 77: @@
 Most countries in the world have sales taxes or value-added taxes at all or several of the national, state, county or city government levels. Countries in western [[Europe]], especially in [[Scandinavia]] have some of the world's highest valued-added taxes. [[Norway]], [[Denmark]] and [[Sweden]] have the highest VATs at 25%, although reduced rates are used in some cases, as for groceries and newspaper.
-===List of some sales tax rates in the world===
-This is a list of tax rates around the world. It is focused on three types of taxes: corporate and individual taxes and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.
+===Sales tax in the world===
+This is a list of tax rates around the world. It is focused on: value added taxes (VAT)and/or good and services taxes (GST). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.
 {| class="wikitable"
@@ Line 234: / Line 235: @@
-==Evolution of Technology and Service makes problem to Sales Tax assessment==
+==Problems with Sales Tax assessment==
 Historically, the sales and use tax statutes applied largely to retailers and manufacturers, that is, purveyors of tangible personal property. As the  economies have shifted to a service-oriented one, the sales tax base has been broadened to encompass intangible services as well. High-tech industries are particularly susceptible to challenge.
@@ Line 296: / Line 297: @@
 Then, in theory, this savings would  be available to expand and create businesses as it's invested in stocks, bonds, CDs, etc.
+====Fair Tax Act====
-''Sales Tax shift'' means to replace the income tax with a national sales tax. This would entirely eliminate the need for individuals to file a tax form. ( And, if the taxes were collected by the states, the need for the IRS as well.) The federal government would set a federal sales tax rate, and you would simply pay as you buy.
+Since the 1990s, the idea of replacing the [[income tax]] with a national sales tax has been floated in the [[United States]]; many of the actual proposals would include giving each household an annual rebate, paid in monthly installments, equivalent to the percentage of the tax (which varies from 15% to 23% in most cases) multiplied by the [[poverty level]] based on the number of persons in the household, in an effort to create a progressive effect on consumption.  While many political observers consider the chances remote for such a change, the ''[[FairTax|FairTax Act]]'' has attracted more cosponsors than any other fundamental tax reform bill introduced in the [[US House of Representatives|House of Representatives]].
-However, a straight sales tax is, as seen in the above paragraph,  also the ultimate in regression. Advocates say there are ways to make it less hard on the poor, by exempting such essentials as food, medical care and housing from the sales tax – or, alternately, giving everyone a substantial rebate every year.
+In the United States, if a consumer purchases [[personal property|goods]] from an out-of-state vendor, the consumer's state may not have jurisdiction over the out-of-state vendor and no sales tax would be due.
-But '''''raising needed revenue in either of those circumstances might require an unpalatably high tax rate on what's left'''''. On top of local and state taxes, a federal sales tax of 30 percent or more could make people nostalgic for their old tax forms.
+However, the customer's state may make up for the lost sales tax revenue by charging the consumer a [[use tax]] in an amount equal to the sales taxes avoided.
+For example, if a person purchases a computer from a local "brick-and-mortar" retail store, the store will charge the state's sales tax.  However, if that person purchases a computer over the internet or from an out-of-state mail-order seller, sales tax may not apply to the sale, but the person could owe a use tax on the purchase.  Some states may also charge a use tax on the in-state transfer of used goods such as automobiles, boats and other consumer goods.
-Critics also note that enforcement of sales taxes is notoriously difficult, and that a high tax rate would increase the temptation to cheat.
-Another structural problem with the sales tax is the '''''potential for double taxation''''' – or more – as goods go through several owners on their way to the consumer market.
+(NOTE: Because of exemptions, not all goods and services are taxed.  The typical consumer will pay sales tax on approximately 1/3rd of all his/her expenditures, i.e. a 7.5% tax will collect on average about 2.5% of a person’s income.{{Fact|date=February 2007}})
-==="Fair Tax Act" to rescue===
-Since the 1990s, the idea of replacing the [[income tax]] with a national sales tax has been floated in the [[United States]]; many of the actual proposals would include giving each household an annual rebate, paid in monthly installments, equivalent to the percentage of the tax (which varies from 15% to 23% in most cases) multiplied by the [[poverty level]] based on the number of persons in the household, in an effort to create a progressive effect on consumption.  While many political observers consider the chances remote for such a change, the ''[[FairTax|FairTax Act]]'' has attracted more cosponsors than any other fundamental tax reform bill introduced in the [[US House of Representatives|House of Representatives]].
+If ''Sales Tax shift'' means to replace the income tax with a national sales tax, this would entirely eliminate the need for individuals to file a tax form. ( And, if the taxes were collected by the states, the need for the IRS as well.) The federal government would set a federal sales tax rate, and you would simply pay as you buy.
+However, a straight sales tax is, as seen in the above paragraph,  also the ultimate in regression. Advocates say there are ways to make it less hard on the poor, by exempting such essentials as food, medical care and housing from the sales tax – or, alternately, giving everyone a substantial rebate every year.
-In the United States, if a consumer purchases [[personal property|goods]] from an out-of-state vendor, the consumer's state may not have jurisdiction over the out-of-state vendor and no sales tax would be due.
-However, the customer's state may make up for the lost sales tax revenue by charging the consumer a [[use tax]] in an amount equal to the sales taxes avoided.
+But '''''raising needed revenue in either of those circumstances might require an unpalatably high tax rate on what's left'''''. On top of local and state taxes, a federal sales tax of 30 percent or more could make people nostalgic for their old tax forms.
-For example, if a person purchases a computer from a local "brick-and-mortar" retail store, the store will charge the state's sales tax.  However, if that person purchases a computer over the internet or from an out-of-state mail-order seller, sales tax may not apply to the sale, but the person could owe a use tax on the purchase.  Some states may also charge a use tax on the in-state transfer of used goods such as automobiles, boats and other consumer goods.
+Critics also note that enforcement of sales taxes is notoriously difficult, and that a high tax rate would increase the temptation to cheat.
-( NOTE: Because of exemptions, not all goods and services are taxed.  The typical consumer will pay sales tax on approximately 1/3rd of all his/her expenditures, i.e. a 7.5% tax will collect on average about 2.5% of a person’s income.{{Fact|date=February 2007}})
+Another structural problem with the sales tax is the '''''potential for double taxation''''' – or more – as goods go through several owners on their way to the consumer market.
-====Few Final Words====
+==Few Final Words==
 If the government thinks of some extra tax on consumption ( i. e.  sales and use )  there might  be a strong argument construed supporting the saying that: