Sales Tax

By Entrepreneur Staff


Sales Tax Definition:

A tax collected by all retailers and certain service providers when they make taxable retail sales. Sales taxes could include state, county and local taxes.

Sales taxes are levied by many cities, counties and states at varying rates. Most provide specific exemptions, as for certain classes of merchandise or particular groups of customers. Service businesses are often exempt altogether. Contact your state and/or local revenue offices for information on the law for your area so that you can adapt your bookkeeping to the requirements.

Before you open your doors, be sure to register to collect sales tax by applying for a sales permit for each separate place of business you have in the state. A license or permit is important because in some states it is a criminal offense to undertake sales without one. In addition, if you fail to collect sales tax, you can be held liable for the uncollected amount.

If you're an out-of-state retailer, such as a mail order seller who ships and sells goods in another state, be careful. In the past, many retailers haven't collected sales taxes on the sales of these goods. Be sure you or your accountant knows the state sales tax requirements where you do business. Just because you don't have a physical location in a state doesn't always mean you don't have to collect the sales tax.

Many states require business owners to make an advance deposit against future taxes. Some states will accept a surety bond from your insurance company in lieu of the deposit.

It's possible for retailers to defer paying sales taxes on merchandise they purchase from suppliers. Once the merchandise is sold, however, the taxes are due. The retailer adds the sales taxes (where applicable) to the purchase. To defer sales taxes, you need a reseller permit or certificate. For more details on obtaining a permit, contact your state tax department.

More from Taxes

Alternative Minimum Tax (AMT)

A separate tax system designed to keep high-earning corporations and individuals from reducing their taxes to a level that the federal government considers too low

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Employer Identification Number (EIN)

A 9-digit number obtained by a business with paid employees from the IRS. If you're a sole proprietorship, your EIN is your social security number.

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Medicare Taxes

The tax you withhold from your employees' paychecks to cover the cost of Medicare expenses

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Tax Deductions (aka Standard Business Tax Ded

The costs of doing business that are tax-deductible to the full extent of the law

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