Introduction
Generally, when you buy some commodities from market or use certain services, a consumption tax charged when you are going to purchase those goods or services. This tax is generally called sales tax. The sales tax is set by the government. National government, state government or even local municipality and other administrative bodies can charge this tax. In the market, you can obviously find products marked tax-inclusive (tax that is included in the selling price) and tax-exclusive (tax that is added to the original product price at the point of sale).
The sales tax payers
The end users are only charged with the sales tax. An end user does not have a resale certificate. But if a purchaser is buying items to sell it to general public, he has to posses the resale certificate to avoid service tax as the tax is charged only to those persons who do not have the certificate. Though you have to pay the sales tax, government takes the sales tax on the sold products from the sellers and it is unnecessary for you to have a headache of giving the tax, only except when it is economically burden for you. But in many cases, the sellers also may fall in the problem of paying sales tax. A sales tax is charged only once on an item, and is easy to calculate, though it is difficult to escape service tax.
Effects
Sales taxes can obviously affect you if your income is low as you have to spend a good amount of their earnings behind these sales taxable items. This is because tax is same for all the purchasers. However, this may be solved if the tax calculation is done on the basis of income, though it is really difficult to do so and also will make the tax calculations more complex. There are also some solutions like if the sales tax is income related, then the tax amount can be paid from savings or unspent income. Government bodies often exclude items of sales tax to create progressive effects in the society. In a lot of places, necessary items like food, clothing, or medicines are excluded from sales tax to relieve the tax burden on the poor.
Sales tax planning
Many companies and corporations develop plans to reduce tax burdens. Following ways can be helpful in sales tax planning:
Searching out methods to reduce the tax amount on a transaction legally: Tax amount of the total transaction of a product may depend on how a producer or company structures its bills on goods or services. Each government has its own laws for setting sales tax. In many governments, there are laws that are more advantageous for end users for using certain goods or services. If a producer supplies goods to end users under different government, he can choose the best way which will reduce the sales tax maximum.
Review of purchases for finding out which items may exclude tax: It is always a good idea to check the bought items as overlooked items may have been excluded of taxes that results in savings.
Procedural reviews of sales and gathering and retention of tax: The producer must produce proper detail, exemptions, bills on goods and services and all resale certificates during audits of sales and use tax.