Sales Tax
March 14, 2009
At the end of every fiscal, along with evaluating one’s earning’s throughout the year, another task, which is often referred to as a necessary evil is the payment of taxes. Knowing the different kinds of taxes and the intricacies of it is useful in more ways than one. It helps us plan our financials better and save more. Taxes are divided into two kinds of taxes, direct tax and indirect tax. Direct tax refers to the tax that is directly charged on the organization or the individual by the government. Indirect taxes are collected by an intermediary from the person who bears the ultimate burden of paying his/her taxes.
Sales tax is an example for indirect tax. It is levied indirectly on the individual or organization by the intermediaries who hand over the proceedings to the government and filed the tax return. Sales tax is a consumption tax that is charged on goods and services at the point of purchase. Consumption tax refers to the tax that is imposed on the spending of goods and services. Sales tax is set as a percentage of the sales price set by the government. This tax that is displayed on the sales price can be tax inclusive, which means that the tax could be included in the price or tax exclusive, i.e. added at the point of purchase. In the United States, sales taxes are assessed at every state. Sales taxes are collected by the seller who later turns it over to the government. Therefore, it is the responsibility of the merchant to collect the tax and pass it on to the government. Sales taxes can be charged on the sales of goods and also on services. Normally, sales taxes are implied on the sales of goods and are charged exactly once on each goods sold. In the United States, some states offer exemptions to special types of organizations, like schools. However, they need a certificate to avail this privilege.
Sales taxes are of various types. Some of them are seller or vendor taxes, consumer excise taxes, Value Added taxes (VAT) and use tax. Vendor tax is directed at all sales of the business, i.e. the item gets taxed more than once as it makes its way through the value chain. Excise taxes are imposed on high value items like alcohol and are often levied on the producer of the goods rather than the seller. VAT is charged on all sales and use tax is useful in sales on the internet where the tax is imposed directly on the purchaser on goods purchased without sales tax.
While understanding the details of sales tax, it is essential to know a bit about corporate sales tax. Knowing what sales tax audit is will be the first step. A sales tax audit is the examination of a company’s financial documents by the state’s tax agency to verify if they have collected the correct amount of sales tax from their customers. Corporate sales tax planning has the primary objective of determining ways to legally reduce the amount of tax during transactions. Each nation provides its wards the privilege of exemptions. These exemptions can play a significant role in increasing one’s savings. Due to this reason, corporate sales tax planning includes reviewing of company purchases to find out which assets may qualify for exemption. The final part of planning includes periodic review of procedures pertaining to Sales and Use Tax data gathering and retention so that proper supporting documentation, including exemption and resale certificates, are available in the event of a State audit. Thus, understanding the details of sales tax and corporate sales tax helps us be aware of where our money goes during each financial transaction.
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