Sales Tax

Sales tax is a percentage of the total taxable sale that is added on to each purchase that consumers must pay. There are taxable and non taxable sales because some organizations are tax exempt.
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Tax exempt means that an organization or company does not have to pay sales tax. To become tax exempt proper paperwork must be filed with the state that the organization or company is operating in. The state will then issue them a tax exemption certificate and an identification number.

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Organizations wanting tax discounts from vendors must show their tax exemption certificates or numbers to the vendors to obtain that status and restriction can vary from state to state. Vendors are then supposed to send this information to the state to verify the organization is indeed tax exempt. Vendors must keep a copy of the tax exemption certificates of organizations such as these in case there is an audit done.

Sales tax audits are not common, but they do occur in times where an organization has been reported for not paying their sales tax properly. When audits such as these occur, auditors will verify tax exemption certificates and sales tax payments and receipts. Companies who do not pay sales tax properly can be shut down and fined. Sometimes, they can also face stiff penalties, such as jail time, if the amount of sales tax they were supposed to pay is quite a bit of money. Keeping detailed records of proper tax payments are essential.

Every sales tax payment is actually a combination of two percentage amounts, a state percentage and a city percentage. For example, Texas has a state tax rate of six and a quarter percent. The city of Kerrville in Texas has a local rate of two percent. This equals a total of eight and a quarter percent sales tax that is added on to taxable purchases. Every city and state have a different rate, so tax rates vary for every location. When a business receives sales tax from their customers, they let them accumulate for a month. Then, the each month’s total sales tax is sent by electronic payment to the state’s sale tax department paying the sales tax to them. The state keeps their percentage, and sends the city their percentage due.

States have varying amounts of sales tax. Just as Texas has a sales tax percentage of six and a quarter percent, New York has only four percent for theirs. There are also a few states, like Oregon and Alaska, that charge no state sales tax at all, only local sales tax.

Some purchases have brackets to make sure that enough tax is added at the time of sale. These brackets are ranges of amounts that a percentage of sales tax is added to if the purchase is a small amount. These brackets usually apply to purchases that are not whole amounts. It is important that the correct amount of sales tax be added at the time of the purchase because if it is underpaid by the customer, the vendor is responsible for paying the amount of sales tax that is short.