Sales tax

A sales tax is a levy paid to a government on the sale of specific goods and services. Typically, laws permit the seller to collect the tax from the buyer at the time of purchase. When a consumer pays a tax on goods or services directly to a government, it is usually termed a use tax. Many laws exempt certain items from sales and use taxes, such as food, education, and medicines. A value-added tax (VAT) on goods and services is related to a sales tax; see the comparison for key differences.

**Types**

A conventional or retail sales tax applies to the sale of a good to its final end-user and is charged each time that item is sold at retail. Sales to businesses that will resell the goods are not taxed. A buyer who is not an end-user typically receives a "resale certificate" from the tax authority and must present it (or its ID number) to the seller at purchase, along with a statement that the item is for resale. Otherwise, the tax is charged on each item sold to buyers without such a certificate who are under the tax authority's jurisdiction.

Other types of sales taxes or similar taxes include: - **Manufacturers' sales tax**: a tax on sales of tangible personal property by manufacturers and producers. - **Wholesale sales tax**: a tax on wholesale sales of tangible personal property packaged and labeled for delivery to final users and consumers. - **Retail sales tax**: a tax on retail sales of tangible personal property to final consumers and industrial users. - **Gross receipts taxes**: levied on all sales of a business; criticized for their "cascading" or "pyramiding" effect, where an item is taxed multiple times from production to final retail sale. - **Excise taxes**: applied to a narrow range of products (e.g., gasoline, alcohol), usually imposed on the producer or wholesaler rather than the retailer. - **Use tax**: imposed directly on the consumer of goods bought without sales tax, typically from a vendor outside the tax authority's jurisdiction (e.g., another state). Use taxes are common in states with a sales tax but are usually enforced only for large items like automobiles and boats. - **Securities turnover excise tax**: a tax on the trade of securities. - **Value added tax (VAT)**: tax charged on all sales, avoiding the need for resale certificates. Tax cascading is prevented by applying the tax only to the difference ("value added") between the price paid by the first purchaser and each subsequent purchaser. - **FairTax**: a proposed federal sales tax intended to replace the U.S. federal income tax. - **Turnover tax**: similar to a sales tax, but applied to intermediate and possibly capital goods as an indirect tax.

**Implementation**

Most countries have sales taxes or value-added taxes at national, state, county, or city levels. Western European countries, especially in Scandinavia, have some of the highest VATs: Norway, Denmark, and Sweden have rates of 25%, while Hungary has the highest at 27%, though reduced rates apply for items like groceries, art, books, and newspapers. Globally, conventional sales taxes are increasingly replaced by VATs, which now account for about 20% of worldwide tax revenue. Over 140 countries have adopted VAT systems, leaving the United States as one of the few nations still using a conventional sales tax model.

In the U.S., 45 states impose a statewide sales tax, and 38 allow local sales taxes, which can significantly raise the total rate. Even states with moderate statewide rates can have high combined rates. In some U.S. jurisdictions, multiple levels of government each impose a sales tax. For example, Chicago (Cook County), Illinois has a rate of 10.25% (6.25% state, 1.25% city, 1.75% county, 1% regional transportation authority), plus a 1% Metropolitan Pier and Exposition Authority tax on food and beverage (making dining out 11.25%). In Baton Rouge, Louisiana, the rate is 9.45% (4.45% state, 5% local). In Los Angeles, it is 9.5% (7.25% state, 2.25% county).

In California, sales and use taxes consist of various state, county, and city taxes. The state tax is "imposed upon all retailers" for the "privilege of selling tangible personal property at retail." Strictly, only the retailer is responsible for paying the tax; when a retailer adds it to the purchase price, the consumer is reimbursing the retailer by contract. When consumers buy goods from out-of-state (where the seller owes no tax to California), the consumer must pay a "use tax" equal to the sales tax. This use tax is levied on the "storage, use, or other consumption in this state of tangible personal property." Consumers are supposed to declare these purchases on their annual state income tax return, but rarely do. An exception is out-of-state car purchases, where use tax is collected when registering the vehicle in California.

**Electronic commerce**

Sales tax on online purchases works differently. Generally, there are four types of electronic commerce—intermediaries, retail, business-to-business, and media—all affected by consumer response to sales tax. While consumers are technically supposed to pay sales tax on cross-state border transactions, enforcing it is impractical. As a result, online retail stores have had a distinct advantage.