Sales Taxes: Tax Types, Jurisdictions, E-Commerce, and Effects

All flashcards

What is a sales tax?

A tax imposed by a governing body on specified sales of goods or services. The seller commonly collects it from the consumer at the point of purchase.

What is a use tax?

A tax generally imposed directly on a consumer who uses or stores goods purchased without sales tax, often because the seller was outside the taxing authority’s jurisdiction.

What does a resale certificate show?

It documents that a purchaser is buying goods for resale rather than as the final end-user, which can support an exemption from retail sales tax on that purchase.

What is tax cascading?

Tax cascading occurs when a tax, such as a gross receipts tax, applies at multiple stages so that an item may effectively be taxed more than once as it moves toward the final sale.

How does VAT differ from conventional retail sales tax?

A conventional retail sales tax is generally charged on the sale to the final end-user. VAT is accounted for at multiple stages and is designed to tax the value added at each stage.

Quiz questions

1. At what point is a conventional retail sales tax generally charged?Answer: When a good is sold to its final end-user.
2. How is a combined sales tax rate calculated when several jurisdictional taxes apply?Answer: By adding the applicable component rates.
3. What makes a sale a remote sale in the described tax context?Answer: The vendor lacks a local physical presence in the customer’s jurisdiction.
4. What is the purpose of the Streamlined Sales and Use Tax Agreement?Answer: To set standards that simplify and make tax laws more uniform among participating jurisdictions.
5. Why are sales taxes generally described as regressive?Answer: They can take a larger share of income from lower-income households.