Differentiating Between Sales and Use Tax

July 3, 2012 by  Filed under: Taxes 

Truth be told, not everyone have a good grasp of sales and use tax rates, and what the distinctions between the two are. For starters, you must understand that there’s no single sales-type tax concept across US states. For instance, there are only five states – Alaska, Delaware, Montana, New Hampshire, and Oregon – that have no state sales tax. But this doesn’t mean instant immunity – there may be a use tax without a sales tax, or vice-versa.

Sales taxes, generally speaking, refer to those imposed by the state on retail sales. There are different types of it; in fact there can be distinct taxes that together comprise the sales taxes of a given state.

The three general types are seller or vendor privilege taxes (imposed on the retailers for the privilege of making retail sales in the state), consumer excise taxes (imposed on the persons making retail purchases in the state), and retail transaction taxes (imposed on the retail sale transaction itself, the liability for payment both on the seller and buyer).

Use tax, on the other hand, is meant to close a perceived loophole. Generally, the taxing power of a state is only within its borders, and this means that a state can’t impose its sales tax on retail sales consummated in other states. Use tax is then a complementary tax applying to the use, storage, or other consumption within the state of tangible personal property, whose purchase supposedly subject to the sales tax had the transaction happened within the state borders.

A state, however, can’t force you to register or collect this unless you have a physical presence within the state. This means you maintain an office or store in the state or perform services there, to cite a number of circumstances. Similar standards apply to telemarketing businesses and direct mail retailers through the World Wide Web, and so a uniform sales and use tax system needs to be agreed upon by states.

As for taxable transactions, the main target of general sales taxes are retail sales of tangible personal property. The scope, though, have been expanded in many states to include certain services.

A hosted, programmable Web-based service providing real-time, updated sales and use tax rates information for every US and Canada jurisdiction will be of help to you in ensuring accuracy and savings in time and resources. A simple, fast, and accurate sales tax calculator updates information monthly, locates current and correct rates by postal code, exact address, or city/country/state, and provides lookup securely via XML.

Learn more about sales and use tax rates and how a real time web-service can help your business.

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