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What is Sales Tax?

A sales tax is a tax on spending paid to the government when certain things and services are sold. Most of the time, the sales tax is paid by the buyer when they buy something. In most countries, sales tax is called value-added tax (VAT) or goods and services tax (GST), which is a different kind of consumption tax. In some countries, the prices mentioned for goods and services are the prices before taxes, and a sales tax is only added when the item is bought. In other countries, the prices mentioned include the sales tax, so they are the final prices after taxes.

U.S. Sales Tax

At the government level, there is no sales tax in the United States. At the state level, all but five states do not have a national sales tax. This includes the District of Columbia, Puerto Rico, and Guam. Alaska, Delaware, Montana, New Hampshire, and Oregon are among these states. There are different sales tax amounts in states that have them, and even within states, there can be neighbourhood or city sales taxes. Unlike VAT, which is not required in the U.S., sales tax is only applied to purchases made at retail stores. Most deals between businesses do not have to pay sales tax.

The sales tax rate can be anywhere from 0% to 16%, based on the state and the type of good or service. Each state has its own rules about how sales tax is collected and paid. In Texas, you don't have to pay tax on prescription medicine or food seeds. Vermont has a general sales tax of 6%, but sales of alcoholic drinks that are drunk right away are taxed an extra 10%. These are just a few examples of how taxes are different in different places. State to state, sales tax rules and laws are very different.

On average, Americans lose about 2% of their personal money because of sales tax. Nearly one-third of the money the state government gets comes from sales tax. Only income tax is more important as a source of money. Different states depend on the sales tax in different ways. In the south and west, sales taxes are much more important than in New England and the industrial Midwest. Florida, Washington, Tennessee, and Texas all get more than half of their tax money from the sales tax, and in some of these states, the sales tax brings in close to 60 percent of their tax money. On the other hand, New York only gets about 20% of its money from the sales tax.

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U.S. History of Sales Tax

In the 18th century, when the U.S. was still a British colony, the English King made the American colonies pay a sales tax on different things, even though they had no say in the British government. This way of taxing people without giving them a voice led, among other things, to the Boston Tea Party. The American Revolution happened because of this and other things. So, the fight over a sales tax had something to do with the birth of the U.S. Since then, there have been a lot of problems with sales tax in the U.S., which may be why there has never been a federal sales tax. When sales tax was first tried, it caused a lot of headaches. The sales tax really took off during the Great Depression, when state governments were having trouble finding good ways to bring in money. Out of all the different ways that were tried, sales tax won because the economy in the 1930s was based on selling things. Mississippi was the first state to do this in 1930, and it spread quickly to the rest of the country. Today, sales tax is usually a necessary and useful way for state and local governments to get money. It is charged in most states.

How to Deduct Sales Tax in the U.S.?

When filing their federal income taxes, people must decide whether to take the standard deduction or list all of their expenses. Everyone will make a different choice, but most Americans go with the normal subtraction. Only if you itemise your expenses can you take sales tax off of your federal income tax. In general, itemising expenses may not be worth the time for people whose only tax-deductible cost is sales tax. When you itemise your taxes, you have to keep careful records and it can be a lot of work because the IRS needs sales tax records like a year's worth of buy receipts. If you plan to itemise, you should keep detailed records. This will help you figure out how much sales tax you paid.

After deciding between standard deductions and itemised deductions, people must decide if they want to claim state and local income taxes or sales taxes (but not both). Most people choose to reduce income taxes because it usually gives them a higher number. So, people who made a lot of big purchases during the year might be better off deducting sales tax instead of income tax if their total sales tax payments were more than their state income tax. A taxpayer's sales tax payment could be bigger than their income tax payment if they bought a new car, got married, bought an engagement ring, went on vacation or bought more than one big item during the tax year. In fact, less than 2% of Americans take an exemption for sales tax each year.

Value-Added Tax (VAT)

VAT is a type of sales tax that is used in over 160 countries outside of the U.S. VAT is a kind of secondary tax that is added to things and services at different points in the process of making them, whenever value is added. Countries that have a VAT can also charge it on things that are brought into or taken out of the country. VAT is usually paid by everyone in the supply chain, including dealers, marketers, producers, makers, and stores. In the U.S., only the final customer pays sales tax. VAT can be worked out by taking the sale price and subtracting the cost of goods or parts that have already been charged.

The Tax Foundation released a study in 1979 that looked at the pros and cons of using VAT instead of sales tax. Because VAT is taxed at every step in the process of making a good, it is harder to avoid paying taxes. This may be the biggest benefit of VAT. Also, when everyone in a supply line has to pay taxes, they have more reason to keep costs down. When compared to sales tax, VAT can bring in more money at the same rate. On the other hand, VAT tends to be unfair, which means that it takes more money from people with lower incomes. Also, the sliding tax hurts new and small businesses, may cause inflation, and hurts exports. To find out more about VAT or to do calculations with it.