What is a sales tax?

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A sales tax is a government-imposed consumption tax on the sale of products and services. A conventional sales tax is imposed at the moment of sale, received by the merchant, and then sent to the government. A company is liable for sales taxes in a particular jurisdiction if it has a nexus there, which could be an employee, an affiliate, a physical site, or perhaps another presence, in accordance with the rules in that jurisdiction.

Retail or conventional sales taxes are solely imposed against the final consumer of a product or service. Because most items in modern economies go through several stages of the manufacturing process, many of which are handled by multiple businesses, a substantial amount of documentation is needed to form who’s really fully responsible for sales tax.

Many jurisdictions impose different sales taxes, which frequently overlap, such as when counties, counties, and states all impose their respective sales taxes. Use taxes, which are levied on residents who buy things from outside their jurisdiction, are highly correlated to sales taxes. These are normally established at the same rate as sales taxes, but because they are hard to enforce, they are only imposed on substantial purchases of physical commodities.

The implementation of this tax has a direct impact on the consumer when purchasing non-exempt products and services. For big purchases, most consumers may find it beneficial to cross borders just to pay lower taxes than they would in their own state. Many people believe that sales taxes are regressive because they impose a higher burden and proportion of income on low-income people.

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Pieter Borremans
By Pieter Borremans

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