Agribusiness Library

LESSON L060058: SALES TAX

Objectives1. Explain the different types of sales taxes.

2. Determine the sales tax rates in your city, county, and state; compute sales tax given the principal amounts and the tax rate.

Terms•Excise tax•Sales tax

A sales tax is a tax levied by a state, county, and/or city on the price of goods or services purchased by consumers. Most, but not all, states collect a sales tax.

The states of Alaska, Delaware, Montana, New Hampshire, and Oregon do not have state sales taxes.

For the states that do have a sales tax, the rates range from 3.5 to 7.25 percent of the purchased price of a good or a service.

In addition to the state sales tax, a city or county sales tax may be added to the purchase price.

A positive point about sales taxes is that it can be used as an itemized deduction on income taxes.

A negative aspect about sales taxes is that low-income individuals and families pay a larger percentage of their income on sales taxes than do high-income individuals and families. To diminish the impact of sales taxes on low-income

families, most states have sales tax exemptions or lower sales tax rates on food and prescription drugs.

A. A general sales tax is a given rate or percentage of the sale applied to the sale of many items (e.g., clothing, automobiles, and furniture). 1. In some states, there are sales tax

exemptions for food, prescription drugs, and inputs for agricultural production.

2. There is not a national sales tax in the United States. However, cities, counties, and states may impose

sales taxes. 3. Sales taxes are the responsibility of the

business to collect and provide to the taxing body (e.g., the city, county, or state).

B. An excise tax is a tax imposed on the purchase, manufacturing, or consumption of certain goods (e.g., gasoline, alcohol, and tobacco). Typically, the purpose of an excise tax is

to discourage a particular behavior. For example, a tax on tobacco is

intended to raise the price of cigarettes or other tobacco products to a level that will discourage use.

Sales taxes may be imposed at the local, county, or state level.

Various sources of information (e.g., the Internet or public officials) can be used to determine the sales tax rates for local and state sales taxes.

When figuring out the amount of tax on an item, the purchase price must be multiplied by the tax rate, which is always expressed as a percentage. Purchase price × Tax rate percentage = Tax added to the

purchase price

Once the tax that will be added to the purchase price has been computed, add that amount to the original purchase price. Tax added to the purchase price +

Original price of purchase = Total purchase price

REVIEW•What are the different types of sales taxes?

•How can someone learn the tax rates in certain areas? How can sales tax be computed?