Pace Work. Maths. 10D. 11.01.2021

Topic: Sales tax. Purchase tax. Calculation of taxes depending on the interest rate. The sale price of real estate depending on the state tax rate.

Study the theory block and do the task:

Sales Tax is defined as a tax on the sale, transfer, or exchange of a taxable item or service. Sales tax generally applies on the sale to the end user or ultimate consumer. Sales tax is generally added to the sales price and is charged to the purchaser.

Sales tax in its truest definition applies only to intrastate sales where the seller and the customer are located in the same state. Sales taxes are considered “trust taxes” where the seller collects the tax from the customer and remits the collected tax to the appropriate taxing jurisdiction.

There are different types of sales taxes imposed by the states. Some states are Seller Privilege Tax states while others are Consumer Tax states.  This determines who is primarily liable for the payment of the tax.

In Seller Privilege Tax states, the seller is primarily liable for the tax.  The seller must pay the tax whether or not the tax is collected from the purchaser.  The tax is generally imposed on the privilege of doing business in the state.  Since the tax is not required to be passed on to the purchaser, it is not required to be separately stated on the invoice.  However, most sellers do show the tax on the invoice.  Under audit, the state can only collect the tax from the seller.

In Consumer Tax states, the tax is imposed on the buyer with responsibility for collection by the seller.  The seller is still required to remit the tax even if it is not collected from the buyer, but it is usually easier to recover the tax from the buyer.  The tax is generally imposed on the privilege of using or consuming the products or services purchased.  Under audit, the state can collect the tax from either the seller or the purchaser.  Most of the states are considered Consumer Tax states.

Use Tax is defined as a tax on the storage, use, or consumption of a taxable item or service on which no sales tax has been paid. Use tax is a complementary or compensating tax to the sales tax and does not apply if the sales tax was charged.

Use tax applies to purchases made outside the taxing jurisdiction but used within the state. Use tax also applies to items purchased exempt from tax which are subsequently used in a taxable manner.

There are two types of use taxes – Consumer Use Tax and Vendor/Retailer Use Tax. Consumer Use Tax is a tax on the purchaser and is self-assessed by the purchaser on taxable items purchased where the vendor did not collect either a sales or vendor use tax.  The purchaser remits this tax directly to the taxing jurisdiction. Vendor or Retailer Use Tax applies to sales made by a vendor to a customer located outside the vendor’s state or sales in interstate commerce if the vendor is registered in the state of delivery.

How to Deduct Sales Tax

When filing federal income tax, taxpayers need to choose to either take the standard deduction or itemize deductions. This decision will be different for everyone, but most Americans choose the standard deduction because it is simpler and hassle-free. Sales tax can be deducted from federal income tax only if deductions are itemized. In general, taxpayers with sales tax as their only deductible expense may find that itemizing deductions is not worth the time. Itemizing deductions also involves meticulous record-keeping and can be tedious work because the IRS requires the submission of sales tax records, such as a year's worth of purchase receipts. Anyone who plans to itemize should be keeping detailed records, as it will be very helpful in determining the amount of sales tax paid.

After the choice between standard or itemized deductions has been made, taxpayers have to make another decision regarding whether or not to claim either state and local income taxes, or sales taxes (but not both). Most taxpayers choose to deduct income taxes as it typically results in a larger figure. With that said, it may be better for taxpayers who made large purchases during the year to deduct sales tax instead of income tax if their total sales tax payments exceed state income tax. Taxpayers who paid for a new car, wedding, engagement ring, vacation, or multiple major appliances during a tax year can potentially have a greater sales tax payment than income tax payment. In reality, less than 2% of Americans claim sales tax as a deduction each year.

For more information about or to do calculations involving income tax, please visit the Income Tax Calculator.

The main objective of incorporating the VAT is to eliminate tax on tax (i.e., double taxation) which cascades from the manufacturing level to the consumption level. For example, a manufacturer that makes notebooks obtains the raw materials for, say $10 which includes a 10% tax. What is the tax of $9? What additional tax can be added?