Sales tax
A sales tax is a consumption tax charged at the point of purchase for certain goods and services . The tax is usually set as a percentage by the government charging the tax . The tax can be included in the price or added at the point of sale . Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid and is charged exactly once on any one item, is simple to calculate and simple to collect.
A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user, unlike a gross receipts tax levied on the intermediate business that purchases materials for production or ordinary operating expenses prior to delivering a service or product to the marketplace . This prevents so-called tax "cascading" or "pyramiding," in which an item is taxed more than once as it makes its way from production to final retail sale . Normally the sales tax on a particular commodity is added to the payable cost of the same . Thus the sales taxes, while purchasing a commodity is something that is not required to be calculated manually . However at times there are many commodities on which at the time of purchase, the sales tax has to be calculated manually .
Calculating Sales Tax
There are two
factors that determine what one pays for an item ; the first is the retail price
of the item, the second is the sales tax . Figuring out how to calculate sales
tax on an item is easy.
STEP 1: Find out the sales tax in the area. The Federal Tax
Administration has the sales tax for every city and state on file .
STEP 3: Sales tax is computed as a percentage. For example, a
6.25% sales tax means one would be paying 6 .25 cents in tax for every dollar .
STEP 4: Take the retail price of the item, or items, one is about
to purchase and multiply it by one and the sales tax percentage . For instance,
if an items cost is $49.99 and the local sales tax is 6 .25%, one would multiply
49.99 by 1.0625. Adding the one to the beginning of the percentage adds the
sales tax onto the price automatically .
STEP 5: One should be sure to know the sales tax in the city,
not just the state ?s sales tax. The city one lives in no doubt has a higher tax
rate than the state .
STEP 6: For multiple items, simply add up the prices and
multiply the subtotal by the one and the sales tax .
VAT
A related type of tax is the value-added tax or VAT . It is a system in which all businesses remit taxes on the sales but they are also refunded the amount of VAT remitted by their suppliers . In addition to avoiding cascading, under VAT there is no need for government to determine which sales are taxable and which are not, since all sales, irrespective of being retail, wholesale and intermediate, are taxed .
Other Articles
