Sales Tax Types

Sales taxes are among the oldest and most effective means of taxation. Their simplicity and collection methods make it one of the easiest taxes for governments to administer. Some of the first taxes in the United States were sales taxes. Sales taxes were being collected in America even before the United States had declared its independence. Today, many historians cite unfair taxes as the main cause of the Revolutionary War.

Types of Sales Tax

Believe it or not, there are several different types of taxes which all fall under the category of a sales tax.

Gross receipts tax

This is the standard sales tax which we are used to paying. This tax is a combination of state, city, county, and other local taxes.

Excise tax

Excise taxes are additional taxes which are sometimes levied against certain goods. Gasoline, alcohol, and cigarettes are all examples of products which are subject to excise taxes. Because of the nature of alcohol and cigarettes, and the overwhelming excise taxes placed on these goods (as a percentage of retail price), excise taxes are sometimes known as “sin tax”.

Use tax

Use taxes are excise taxes placed on goods which typically do not fall under the criteria to be counted as taxable by regular sales tax. One important caveat to use tax is that the tax is due on goods which are purchased in another state. Typically, use tax is only collected on large private sales. Selling your car, for example, may require you to pay a use tax. Use taxes are generally equal to the standard sales tax rates.

Value added taxes

In contrast to the United States, most foreign countries have enacted what is known as value added tax. Under the value added tax system, sales taxes are paid incrementally by each firm involved in the production and sale of finished goods and services. Each firm in the process pays a tax on the value added to its inputs. Americans do not have to deal with value added tax, however, its popularity abroad makes it worth mentioning.

Sales Tax in California

In California, sales taxes are collected on all finished goods sold to consumers. The tax is collected at the point of sale, and then paid to the government quarterly (every three months). Since sales tax includes local city and county taxes, tax rates will vary depending on where a particular purchase is made. Rates currently range from 8% to nearly 10%, depending on jurisdiction. For consumers, paying the tax is simple. For businesses, however, collecting and paying the taxes can become quite a chore. For this reason, business owners are urged to have an accounting professional – a bookkeeper or CPA – handle recording and paying sales taxes.

In this article, we have reviewed the different sales tax types.