Types of sales tax
Types of sales tax
A conventional or retail sales tax is charged only on the sale of an item to its final end user. To achieve this, a purchaser who is not an end user is usually required to provide the seller with a "resale certificate," which states that the seller is purchasing an item to resell it. The tax is charged on each item sold to purchasers who do not provide such a certificate.
Other types of sales taxes, or similar taxes, include:
*. Gross receipts taxes, levied on all sales of a business. This tax has been criticized for its "cascading" or "pyramiding" effect, in which an item is taxed more than once as it makes its way from production to final retail sale.
*. Excise taxes, applied to a narrow range of products, such as gasoline or alcohol, usually imposed on the producer or wholesaler rather than the retail seller.
*. Use tax, imposed directly on the consumer of goods purchased without sales tax, generally items purchased from a vendor in another state and delivered to the purchaser by mail or common carrier. Use taxes are commonly imposed by states with a sales tax, but are difficult to enforce on consumers, except for large items such as automobiles and boats.
*. Securities turnover excise tax, a tax on the trade of securities.
*. Value added taxes, in which tax is charged on all sales, thus avoiding the need for a system of resale certificates. Tax cascading is avoided by applying the tax only to the difference ("value added") between the price paid by the first purchaser and the price paid by each subsequent purchaser of the same item.
*. 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.
Most countries in the world have sales taxes or value-added taxes at all or several of the national, state, county or city government levels. Countries in Western Europe, especially in Scandinavia have some of the world's highest valued-added taxes. Norway, Denmark and Sweden have the highest VATs at 25%,although reduced rates are used in some cases, as for groceries, art, books and newspaper
In some countries, there are multiple levels of government which each impose a sales tax. For example, sales tax in Chicago (Cook County), IL is 10.25%—consisting of 6.25% state, 1.25% city, 1.75% county and 1% regional transportation authority. Chicago also has the Metropolitan Pier and Exposition Authority tax on food and beverage of 1% (which means eating out is taxed at 11.25%).For Baton Rouge, Louisiana, the tax is 9%, consisting of 4% state and 5% local rate.
Until 2010, there had never been a federal sales tax in the United States; however, the 2010 health care reform law now imposes a 10% federal sales tax on indoor tanning services.
The trend has been for conventional sales taxes to be replaced by more broadly based value added taxes, and the United States is now one of the few countries to retain conventional sales taxes. VAT has been adopted by the European Union, Mexico, Australia, Canada (Goods and Services Tax) and many other countries.