Businesses are exempt from a variety of taxes throughout the supply chain. Many countries, however, levy value-added taxes (VAT) rather than a standard end-user sales tax.
Students interested in a career in international taxation should be aware of the numerous distinctions between the two types of tax.
What is the definition of sales tax?
A retailer is solely responsible for collecting sales tax on the final sale of a good or service. It is borne by the end user. Generally, sales tax is collected on only those services that are expressly listed. It is only collected once, upon the sale of a good or service to a third party for final use.
This does not mean, however, that sellers and manufacturers are exempt from paying sales taxes. For instance, if a business manufactures electronic goods, it would not be required to pay sales tax on the components used to construct the goods but would be required to pay sales tax on the purchase of safety equipment for its employees. Because the equipment is not a component of the finished product, it is not exempt.
The following items are typically tax exempt:
- Purchases of goods for resale Purchases of components/ingredients used to create goods for sale
- Directly used machinery and equipment in the manufacture of goods Containers and packaging used to ship goods for sale
- In certain circumstances, a sales tax may be applied indefinitely to the same item. For instance, a consumer may be required to pay sales tax on the purchase of a new automobile. When someone else purchases the vehicle later, he or she may also be required to pay sales tax on the vehicle. This process will be repeated until the vehicle is sold.
- Foreign visitors to the United States frequently become perplexed when they discover that sales tax is not included in the list price of retail goods. In the United States and its territories, unlike in many European countries, the definition of taxable goods varies by jurisdiction.
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