Types of Sales Taxes
– Conventional or retail sales tax is charged to the final end-user of a retail item.
– Sales to businesses that resell the goods are exempt from the tax.
– Manufacturers sales tax is imposed on sales of tangible personal property by manufacturers.
– Wholesale sales tax is levied on sales of wholesale tangible personal property ready for shipment.
– Retail sales tax is charged on sales of tangible personal property to final consumers and industrial users.
– Gross receipts taxes are imposed on all sales of a business and criticized for their cascading effect.
– Excise taxes are applied to specific products like gasoline or alcohol, usually on producers or wholesalers.
– Use tax is imposed on goods purchased without sales tax from vendors outside the taxing authority’s jurisdiction.
– Securities turnover excise tax is levied on the trade of securities.
– Value added tax (VAT) is charged on all sales, avoiding the need for resale certificates.
Electronic Commerce and Sales Tax
– Online retail stores have an advantage as they do not have to charge a sales tax.
– Consumer sensitivity to sales tax varies, with some studies showing high elasticity and others showing smaller figures.
– Enforcing an online sales tax would have negligible effects on aggregate sales.
– There are four types of electronic commerce: intermediaries, retail, business-to-business, and media.
– Consumer response to sales tax affects all types of electronic commerce.
Effects of Sales Taxes
– Sales taxes are considered one of the least harmful taxes for economic growth.
– Sales taxes are generally regressive as they do not change based on income or wealth.
– Regressive effects of sales tax can be mitigated by excluding rent or exempting necessary items.
– Higher sales taxes can lead consumers to reconsider where they shop.
– High sales taxes can be used to relieve property taxes when property taxes are subsequently lowered.
Enforcement of Tax on Remote Sales
– Every state with a sales tax law has a use tax component for purchases from out-of-state vendors.
– Noncompliance with use tax on remote sales has a growing impact on state revenues.
– Uncollected use tax on remote sales was estimated to be as high as $20.4 billion in 2003.
– Uncollected use tax on remote sales was projected to reach up to $54.8 billion.
– Enforcement of use tax on remote sales is a significant challenge for states.
History and Examples
– Taxes on the sale of goods have been depicted in ancient Egyptian tombs dating back to 2000 BC.
– Sales tax amounts were recorded in Greece in 415 BC.
– Athens collected duties on the import and export of commodities in 399 BC.
– The Roman emperor Augustus collected a one percent general sales tax in AD 6.
– The Roman sales tax was later reduced and abolished by subsequent emperors.
– The United States government has never used a general sales tax.
– Excise taxes on specific commodities functioned as a general sales tax during the Civil War.
– Kentucky and Mississippi enacted the first broad-based, general sales taxes in 1930.
– More states began imposing general sales taxes in the following decades.
– Five states currently do not have general sales taxes.
– Canada uses a value-added federal Goods and Services Tax with a rate of 5 percent.
– Every province in Canada, except Alberta, has either a Provincial Sales Tax or the Harmonized Sales Tax.
– Canada has implemented a sales tax system with federal and provincial components.
– The Goods and Services Tax was introduced in Canada in 1991.
– Sales taxes in Canada vary by province and are collected at the point of sale.
– Businesses can reduce the impact of sales tax through planning.Sources: https://en.wikipedia.org/wiki/Sales_tax
