Business
Understanding Sales Tax
Learn about sales tax, a consumption tax on goods and services. Understand its impact on businesses, online sellers, and consumers.
What is it?
Sales tax is a consumption tax imposed by a government on the sale of goods and services. It is typically calculated as a percentage of the purchase price and collected by the seller at the point of sale. The seller then remits these funds to the relevant government authority. Rates can vary significantly, not just between states but also by county and city, creating a complex tax landscape.
Why is it trending?
The rise of e-commerce has put sales tax in the spotlight. Following the 2018 Supreme Court ruling in South Dakota v. Wayfair, Inc., states can now require online retailers to collect sales tax even if they don't have a physical presence in that state. This concept, known as economic nexus, has created major compliance challenges for online businesses, which must now navigate thousands of different tax jurisdictions. Constant changes in state laws keep this a hot topic for businesses of all sizes.
How does it affect people?
For consumers, sales tax directly increases the final cost of their purchases. For businesses, it represents a significant operational burden. They are responsible for correctly calculating, collecting, reporting, and remitting the tax. Failure to comply can result in audits, fines, and penalties. This responsibility influences business pricing strategies, accounting practices, and even decisions about where and how to sell products, especially for online retailers.