Importance of Sales Tax- A Guide

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Sales tax has become a big challenge for the businesses given it should be taken into consideration in both the fields of sales and purchase transactions. For instance, while selling something, a business need to ensure that it is collecting and remitting the sales tax properly. Besides, while purchasing, the business should also factor in the sales tax.

But business sales tax has become a more complex issue as the technological advances fuel the growth of ecommerce as well as allow even the small online company owners to develop the multi-state presence. These compliance complexities and the related concerns about the fair taxation, mean that sales tax has not just become the part of the daily business conversation, but it is the issue, which every business should understand.

What is sales tax?

Sales tax is a type of tax imposed by the local and state jurisdictions on the retailers for the opportunity of selling Tangible Personal Property (TPP) in the same jurisdiction. The responsibility of collecting sales tax is usually borne by the seller. In case the seller doesn’t have any minimum connection needed to charge sales tax.

Benefits of having sales tax:

In case you are undecided whether to have sales tax, then here are the details of the benefits of having sales tax:

  1. Simplicity: Income tax often becomes highly complex. There are actually various rates at which people are taxed. But sales tax actually simplifies the entire method. Here everyone needs to pay the same rate on goods. Therefore, there is no requirement of maintaining detailed records of deductions and earnings throughout a year.
  2. Additional revenue: While some people propose sales tax at the alternative to income tax, others consider it as the supplement to income tax. In fact, the sales tax adopted along with income tax offer additional revenue.
  3. Fairness: At present, people need to pay different types of rates on the taxes. But the sales tax successfully eliminates this type of seemingly arbitrary disparity. This thing charges everyone at the similar rate on the basis of what they actually consume and not on the basis of what they earn.
  4. Productivity: Some critics of the progressive income tax think that sales tax is restrictive of productivity. Where income tax places the tax on productivity, the sale tax mainly taxes on the basis of consumption. According to the proponents, this thing leads to an enhancement in the productivity by releasing the fetters.
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