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Consumption Taxes

What States Implement Consumption Sales Tax

What States Implement Consumption Sales Tax

The first state to enact a state sales tax was West Virginia. In 1921, West Virginia was the only state to enjoy revenue from a state sales tax. In fact it would be eight years before any other state enacted a state sales tax. Currently, forty five states impose both a state sales tax and a use tax. Sales taxes are usually assessed at the point of purchase of an item, or at any point during the manufacturing of that item.

State sales tax is often paid at several levels during the production of any item and the sales tax rates will vary depending on the state where the purchase is made. Sales tax rates also apply to certain services. A use tax is a tax paid for the use, storage or consumption of an item purchased in another state.
Sales taxes, or consumption taxes, are a taxes placed on the purchase of goods or services. While each state may have different sales tax rates, the state sales taxes are not based on residency. For example, a person from Florida that makes a purchase in New jersey, is still expected to pay New Jersey state sales tax rate  on that item. In fact, they would pay the New Jersey sales tax rate when they bought the items in New Jersey. When they took the items home to Florida, they would be expected to pay a use tax, which is a tax on items, used, consumed or stored in a  state, other than the one in which it was purchases. 
In fact, there are lawsuits which involve state sales taxes, fees and interest on taxes that state governments believes are owed based on records obtained from online retailers. Excise taxes are also a form of sales tax. However, consumers may not be aware of this type of tax as it is often already included in the price of an item, so the sales tax rate is not obvious to consumers. 
For example, an individual that purchases bottle of liquor, will likely note the state sales tax. Yet, they have likely paid sales tax on the excise tax that is already imposed on that item. An excise tax is imposed on a certain volume of an item. Liquor may be taxed on a per liter basis. The consumer pays a sales tax on the total price of that liquor, which already includes other taxes.
Sales tax is sometimes paid on the total cost of an item, which can already include other taxes. The lower and middle class often pay a larger percentage of their income towards sales tax. The tax reform movement believes that sales taxes, as they are currently implemented, are unfair. Sales taxes can place an unequal tax percentage on the lowest income families. The rich pay a significantly lower percentage of their income towards sales taxes. Sales tax rates are often unfair because they place unequal tax burdens on taxpayers, as sales tax rates relate to individual salaries.

Gross Receipt Tax at a Glance

Gross Receipt Tax at a Glance

Gross receipt taxes are imposed on the total profit of any company. There are some companies, such as non profits, that are exempt form having to pay this tax. In non profits, any revenue, or profit, is poured back into the company, therefore there is no actual profit. A gross receipts tax is a form of sales tax that is imposed on the seller of good and services. 
Generally, the seller will add to the cost of a product and pass those taxes onto the consumer. Consumers often end up shouldering the burden of the taxes on any item, which were likely imposed at several levels, without ever realizing it.
The gross receipts tax is only currently imposed in about ten states. The gross receipts tax includes taxes on all profit or revenue for any business, regardless of the source of that revenue. Gross receipts taxes are the burden of the business that sells an item to consumers. The tax is not the burden of those that purchase the item, but the cost of the tax is often added to goods and services. 
This is done so that a business can recoup some of the money they spend on gross receipts taxes. The tax is  implicitly added to the cost of any item. In other words, the consumer will not see the tax listed on their receipt. Rather, the tax is included in the price of the item once it is in the hands of the consumer.
Generally, the gross receipts tax is imposed a different percentages, depending on the size, or profitability of a business. Smaller businesses are generally charged a lower percentage of their profit as a gross receipt tax. For example, Delaware imposes a gross receipts tax at a rate of less than one percent to businesses that have a profit below a certain threshold, whereas businesses with a higher profit are subject to a gross receipt tax of up to two percent. 
Each state imposes its gross receipts tax differently. In Mississippi, there is a three and half percent gross receipt tax imposed on construction across the state. There are a variety of ways that a gross receipts tax can be imposed to businesses.
The Gross receipt tax has been the subject of controversy. No state is suppose to impose a tax that could have negative impact on business of the Nation as a whole. Some gross receipts taxes are in excess of five percent which could discourage a business from having a branch in a certain state. There have been challenges to the tax, because businesses have claimed that it unfairly places a burden on them.
However, the tax is generally added to the cost of products once they reach the consumer. While the consumer may not realize the increase in price is due to the gross receipts tax, the cost of products to consumers in certain states, is higher in proportion to the percentage of tax assessed by that state.

Know the Types of Sales Taxes

Know the Types of Sales Taxes

There are dozens of types of sales tax. Not all types are currently imposed in the United States. However, members of the tax reform movement have proposed certain types of sales tax, such as the value added tax, as a means of replacing income tax. The movement asserts that sales taxes can be utilized to more fairly place the burden of taxes by an equal distribution of 
taxes according to an individuals income.
Gross Receipt Tax:
The gross receipt tax is a tax paid by businesses after they have totaled their revenues. The revenue, or profit of a company, is totaled regardless of where the profit comes from. Once that total has been reached, the company is responsible for gross receipt taxes as a certain percentage of that profit, depending on the state’s tax laws. There are ten states that currently impose a gross receipts tax to businesses in those specific states. In each state, the gross receipts tax is accessed differently and may not apply to all businesses. Some states only impose the gross receipts tax on certain businesses, such as construction. Whereas other states impose a flat percentage rate tax on all profits of a company, no matter where the profit came from. 
Excise Tax: 


Excise taxes are taxes paid on items based on a flat rate of the volume of an item being sold. For example, each state may have an excise tax on gasoline on a per gallon basis. In addition, each state may impose an excise tax on cigarettes on a per pack basis. Each state has the right to implement those taxes at the discretion of that state’s tax laws. For example, an excise tax on a gallon of gasoline will be different in each state. While one state may only charge a penny per gallon excise tax, another state may charge forty cents. In addition, gasoline has a federal excise tax which applies across the nation. The actual cost of gasoline is much lower that what consumers pay at the pump.
Use Tax: 


Use taxes are imposed on items used by a state resident, that purchased that item in another state and then brought that item to their state of residence. The use tax applies to those items when they are consumed, used or stored in a state other than the state it was purchased in. The most common use tax is the one applied to online purchases. Many times, items purchase online do not include a sales tax in the price of the item. Some states require that consumers voluntarily submit the tax. In other states, each taxpayer is assumed to have a certain use tax based on their salary. The use tax rate can be figured out by placing an individuals salary in the use tax bracket. There have been many lawsuits involving the use tax, such as those involving consumers that purchased cigarettes online. In most cases, the use tax is upheld an the taxpayer is required to pay that tax in addition to late fees and interest.
Value Added Tax: 

The Value added tax is placed at every level of the manufacturing of goods. As the products progresses towards its completion, the value added tax increases in proportion to the value that has been added to the product. Rather than a flat sales tax, the total tax burden is distributed throughout the manufacturing process. The final product generally incurs the highest tax, because It has had the most value added. Like many consumption taxes, the value added tax is involved in several controversies. The lower and middle classes still pay a higher percentage of their salary towards that tax. Any tax that is based on a flat percentage of price, or salary, tends to involve less money being spent by  the wealthy. Those that have larger salaries pay a lesser percentage of their salary toward taxes based on flat rates.


Fair tax: 

The Fair Tax Bill was a proposal in which all consumers would pay a tax on items purchased. The nationwide tax would be imposed at the point of sale. Percentage wise, the fairtax would have been equal to income tax. Each taxpayer would equally share the tax burden based on the purchase of consumer goods. In addition, taxpayers would be unable to avoid shouldering a fair portion of the tax burden. Tourists, and other non residents of the country, would also contribute a fair portion to the tax burden. Any individual that was free to enjoy any benefit funded through the national tax, would also be forced to make a fair contribution toward the tax that pays for those benefits.

Understanding the Use Tax

Understanding the Use Tax

The use tax is one type of excise tax. The use tax is based on items purchased from another state, that are used by a resident in their state of residence. If the product was purchased within the state of residence, it would have incurred a sales tax. Since the product was purchased in another state, the state where the product is used, or the state of residence of the purchaser, would expect the buyer to pay use taxes on that item. 
Generally, the use tax can be assessed on any items purchased out of state, or on the Internet. However, items that are to be resold, would not be subject to use taxes.  The use tax is a sale tax imposed on items that would have incurred a sales tax had the item been purchased in the state of residence. In other words, taxpayers are not responsible for use tax if the items does not incur as sales tax in their state.
Use taxes are often imposed on items used, stored or consumed in the taxpayers state of residence, when they were purchased outside of the jurisdiction. Currently, almost a third of the states include a voluntary use tax line on their tax forms. Use taxes are expected to be paid in certain circumstance  on specific items. When voluntarily paying use taxes, tax payers must disclose all items purchased outside of their tax jurisdiction. 
In contrast, some states assume that each taxpayer shoulders certain use taxes, based on their salary. In those states, taxpayers simply locate their salary on the use taxes table and add that amount to their tax liability. However, taxpayers that purchase an item or items above a certain threshold, must list all items and calculate the use tax on those items.  The Streamlined Sales Tax Project was an effort in which merchants register and disclose all purchases made by out of state residents.
Use taxes have been the subject of many lawsuits. Many Internet retailers have been forced to turn over their records so that the government can begin to enforce the use tax on a more equal level. Most taxpayers have not been willing to volunteer their use tax responsibility amount. Many taxpayers view the use tax as unfair taxation because it often involves paying double tax on an item when an individual purchase that item in a state other than the one in which they reside. However, many taxes are imposed on more than one level, but the consumer simply does not realize it. 
Certain taxes, like excise taxes on gasoline, are already included in the price. Most taxpayers are not even aware that they are paying taxes on certain items. The use tax is likely to be increasingly enforced as states struggle to decrease large deficits in their budgets. Taxpayers may find that they are responsible for past use taxes as well as late fees and interest on those taxes.
 

Value Added Tax or VAT Overview

Value Added Tax or VAT Overview

The value added tax, or VAT tax, is an excise tax that has successfully been implemented in many countries. In fact, most of Europe pays a value added tax on certain items. Currently, the tax reform movement in the United States has proposed value added taxes as a replacement for Federal income tax. 
In addition, members of congress have proposed value added taxes as  way to make revenue to lower the Country’s deficit. If the United States began to impose value added taxes, the tax would be in addition to federal income taxes, and other taxes already paid by citizens. Whereas, the tax reform movement hopes to eliminate other taxes, and have the country rely on the value added tax.
Value added taxes are imposed at every stage of the development of a product. That means that each stage of the manufacturing of a product, has a value added tax associated with it. The tax burden would be shouldered by the consumer and by businesses. Each time their is a transaction associated with the manufacturing of a completed product, their  is a VAT tax associated with that transaction. Every stage of manufacturing, up to and including the sale of a completed product, incurs the VAT tax.
Those that oppose value added taxes, say that the lowest class ends up shouldering a majority of the tax burden based on a percentage of income. In other words, the rich end up paying less taxes as it pertains to percentage of their income. If taxes are only imposed on products, the rich end up paying a lower percentage of taxes from their overall income. The value added tax is a percentage of tax based on the cost of a product. 
For the lower class and the middle class, that tax represents a higher percentage of their overall income which means that they shoulder a majority of the tax burden based on percentage. However, it has been suggested that the distribution of value added taxes can be more equally distributed among the classes. For example, higher end products, which are more likely to be purchased by the wealthy, could be taxed at a higher rate. By taxing higher end products at a higher percentage, the tax rate is more evenly distributed among taxpayers, based on their income.
As a excise tax, the Value added tax could evenly distribute the tax burden on all tax payers. However, the VAT would only work if higher end products incurred a higher rate of tax. In the absence of a product classification for tax burdens, the VAT would be unfair to the lower and middle class.

A Full Guide to Sales Tax

A Full Guide to Sales Tax

Sales taxes are imposed on the purchase of items, as a percentage of the cost of that item. For example, in states that have a sales tax of six percent, taxpayers would pay that sales tax rate on all taxable items purchased in that state. There are however, some items exempt form the sales tax, depending on the tax jurisdiction. In some states, items considered a necessity for survival, such as food, are not taxed. In other states, clothing may not be taxed. Each state is able to make those determinations as there is no federal law that dictates which items should and should not be taxed in each state. Currently, there is no federal sales tax imposed on most items. There are some federal excise taxes, such as those imposed on cigarettes, gasoline and fuel.

Background: 

Sales taxes are imposed at differing rates in each tax jurisdiction. In fact, each tax jurisdiction may apply differing types of sales taxes. In each case, sales taxes are considered to be regressive. Regressive taxes are those that tax items as a percentage of the sale price. In that way, those with lower salaries, pay a higher percentage of their salary towards that tax. In order to be progressive, a sales tax would have to be imposed as a percentage of a taxpayers income, which would nearly impossible. For that reason, many people argue for an elimination of the sales tax, in favor or a progressive income tax, which could more easily be implemented.

Types:

There are several types of sales taxes and each tax jurisdiction can make determinations as to which types of sales taxes they wish to impose. In fact, each jurisdiction is able to determine the rate of taxes imposes on taxpayers.
There is an excise tax which is imposed on certain items that the government wishes to discourage the use, or purchase of. For example, many states impose a large excise tax on cigarettes. A pack of cigarettes may be taxed on the federal level, the state level, and the local level. So an individual buying a pack of cigarettes in one state, may only be taxed 7 cents in their tax jurisdiction. Added to the federal tax, the excise tax on that pack of cigarettes would be around one dollar and seven cents. In other states, taxes make up almost seventy percent of the cost of a pack of cigarettes. 
The same is true for alcohol purchases. Alcohol is taxed as a measure of volume, as opposed to a percentage of price. In both cases, the government wishes to discourage consumption of these products. There is also a use tax which is imposed on purchases made outside of the taxpayers jurisdiction. However, they are only required to pay the use tax on that item, if the item is taxed in their state. For example, a New Jersey resident that buys clothes online, does not have to pay a use tax, because there is no clothing sales tax in New Jersey. Some states expect taxpayers to honestly report any purchases made out of state. 
While other states impose a use tax as a percentage of the each taxpayers salary, assuming a certain amount of out of state purchases. Currently, there has been a push towards the Value Added tax, which would be a federal sales tax. The tax would apply across the country and would be added to the taxes already imposed on purchases.

A Complete Guide to Consumption Taxes

A Complete Guide to Consumption Taxes

 Those items are usually goods and services provided for consumers. Unlike income tax, consumption taxes are indirect because they are not contingent on a persons income. In fact, consumers have a decision about which products to buy, and they do not have to pay taxes on items that they do not buy. The amount of a consumption tax, is dependant on the products that a specific consumer buys. So a consumption tax is based on what an taxpayer spends, rather than on what they earn. 
Tax reform advocates often argue in favor of consumption taxes being used as a replacement for income taxes. If that were to happen, consumers would be encouraged to take part in savings plans and investments. Consumption taxes would not include any taxes on savings accounts, investment accounts or the sale of stocks and bonds. However, consumption taxes can actually be biased based on a persons salary. For example, a middle class consumer that makes a purchase of a similar value, when compared to a purchase by a wealthy individual, is shouldering a higher tax burden. 
Flat rate consumption taxes force those that make a lower salary, to pay a higher percentage of their salary toward taxes on a purchase that incur a lower percentage tax for a wealthy person. In order to offset that difference, it has been proposed that higher end items should incur a larger percentage of consumption tax. A wealthy consumer, for instance, would be more likely to purchase a luxury vehicle. If a middle class consumer were to purchase a mini van, the taxes would be lower than those imposed on a luxury vehicle because taxes should be imposed as a percentage of someone’s salary, no matter how the taxes are actually imposed.
Background: 
Consumption taxes are taxes place on certain goods and services. There are many types of consumption taxes and some items may incur more than one type of consumption tax. For example, a boat being manufactured may have each part taxed before the boat is assembled. In addition, the paint and other items necessary to complete the boat, would also likely be taxed. Finally, the sale of the boat would be taxed. All of those taxes are considered consumption taxes. Consumption taxes have historically been utilized to increase tax revenue within each separate tax jurisdiction. The Constitution gives each state the right to impose state taxes at the discretion of each state’s individual tax laws.  Therefore, consumers in each state likely pay a different percentage of sales tax, if they are required to pay any at all. Consumption taxes can also be imposed at the federal level. For example, an excise tax on alcohol can be imposed by the federal and each state’s government.
Sales Tax: 

Sales taxes are a tax that is imposed on the purchase of most consumer goods and some services. There can be both a state and federal sales tax on any one item. For example, gasoline often has both a state sales tax and a federal sales tax associated with it and each tax in imposed on a per gallon basis. In addition to that excise tax, many states opt to add other types of sales taxes to the price of each gallon of gasoline. 
There are many sales taxes that are imposed before a product even reaches the consumer. For example, the gross receipts tax is a tax imposed on businesses based on their total profit. An estimate of that tax may be imposed as an added cost on a product, as a part of the price, before that product reaches the consumer. Generally, consumers only see their regular state sales tax as a separate line item on receipts. It is likely that all other sales taxes were included in the cost of each specific item before the consumer paid for that item.

Background: 

Sales taxes have been utilized within many jurisdictions in order to increase revenue. There are may types of sales tax and each jurisdiction may impose different types of sales taxes and at different rates. The Constitution allows each state to determine what percentage of sales tax, if any, that it imposes on goods and services. There are some states that do not impose a direct sales tax on items sold within that state. If however, a person that is not a resident of that state were to purchase an item and bring it back to their state, they would be subject to a use tax. 
The use tax is a sales tax that would be imposed on that item by the state of residency, but only if that item is normally taxed in that state. Each state can make separate determinations on which types of sales taxes are imposed on taxpayers in that state. However, every taxpayer is subject to federal sales taxes, when they apply. While a state may not impose an excise tax on gasoline, the federal government does and residents of every state are required to pay that tax, regardless of their state’s tax law.
Types: 
There are at least ten types of sales tax and most of them are utilized in the United States, depending on each jurisdiction’s sales tax law. Federal sales taxes are imposed in every state, according to federal sales tax law. However, each state has the power to impose sales tax at their discretion, according to that states sales tax laws. In fact, some states do not impose any sales tax. Whereas, other states impose sales tax on the purchase of any item, at every stage of manufacturing. 
Often the taxes imposed on items during the manufacturing phase, are added to the cost of an item. Frequently, consumers pay a sales tax when they purchase an item, but they also pay other taxes that have already been added to the price of that item. In essence, consumers are sometimes paying sales tax on top of sales tax. Profit from items that are resold after they have been purchased, are also subject to taxes. Those taxes may be paid under a capital gain tax, or a variety of other taxes depending on the surrounding circumstances.
Sales taxes are consumption taxes. Gross receipt taxes are taxes paid on the profit of a company. Generally speaking, the company will have included that tax in the sale of their items. The purchase price of goods and services,  often includes a companies estimated tax burden, as a part of the cost of that product. Excise tax may also be imposed upon certain products, such as gasoline. Excise taxes can be assessed as apart of a sales tax on a federal and state level as long as it is compliance with sales tax law. 
In fact, local municipalities may also impose an excise tax. The total excise tax placed on an item could total as much as fifty percent after that tax has been imposed by all municipalities. In addition, consumers must pay a use tax if they purchase an item in state other than the one in which they reside. The use tax only applies to items that are taxed within an individuals state of residence. For example, a resident of New Jersey does not have to pay a use tax on jeans purchases in New york because New Jersey does not tax clothing in their sales tax laws. 
However, if  a resident of New Jersey were to purchase cigarettes in Pennsylvania, those cigarettes are subject to use tax because cigarettes are taxed by New Jersey. A fairtax is a tax that is meant to eliminate the need for many other taxes. Like the value added tax, the fairtax is meant to tax consumers at the point of purchase. These taxes are proposed to be a replacement of income taxes, by the tax reform movement.

Excise Tax at a Glance

Excise Tax at a Glance

An excise tax is one in which individuals pay a tax on either the manufacturing of a product, or a completed product. Those products are sold within the country that imposes the excise tax. Products are taxed when they are sold within the United States, not when they are imported. Import taxes are those imposed on items brought into the country to be sold. 
An excise tax is generally passed onto the consumer, by the company that manufactured or sold the item. The company raises the price of the item in order to recover the excise tax from the consumer. Excise taxes are imposed in addition to sale tax, in most cases. In fact, one item can be taxed at several levels, including sales tax, use tax, and the value added tax. That item is also suppose to be taxed if the item is ever resold. Unlike the VAT, an excise tax is not imposed as a proportion to sales value, but instead it is a specific unit tax.
Excise taxes  are often imposed on items such as gasoline and are imposed on a per gallon basis. Currently, law makers in New York are trying to impose an excise tax on sugared beverages, according to the size of the drink. There are excise taxes on items such as cigarettes and alcohol, which are imposed on units of measure of each product. For example, an excise tax may be assessed on a per pack of cigarette basis.
 However, most states do not impose an excise tax if the products used to make a cigarette are purchased separately.  Alcohol is generally taxed at a percentage of the size of the bottle, but usually hard liquor has a higher excise tax then regular spirits. Generally, consumers are not even aware of excise taxes as the tax is already included in the price of the product. 
For example, when an individual fills their tank with gas, they are not aware of the amount of excise taxes placed on each gallon. They simply pay the per gallon price without being aware of the other taxes and fees associated with the price of that gallon of gas. If businesses were made to explain the taxes, and other costs, consumers would likely become confused as to the actual price of an item.
According to tax laws, any indirect tax in the United States, qualifies as an excise tax according to definition. However, there are states, like Hawaii, the treat excise tax as a state wide tax that is used instead of a general sales tax. Excise taxes can be imposed on many levels, including state and federal. For example, gasoline has a flat Federal tax which is assessed on a per gallon level. In addition, most states also impose an excise tax on each gallon off gasoline.

Fairtax at a Glance

Fairtax at a Glance

The fairtax in a consumption tax that would attempt to distribute the Unites States tax burden more evenly among all citizens. As it stands now, the Federal income tax is often thought to place a burden on the poorest Americans.  
The fairtax would tax individuals on the basis of their consumption of consumer goods and would include rebates for those that fall below the poverty level. The tax would be imposed at the point of purchase of specific items. Percentage wise, the rate of the fairtax would be the equivalent of income tax.  A tax rate of approximately twenty three percent would be added to all purchases with that rate being adjusted every year, based on overall revenue from the previous year.
There has been a movement across the country in which taxpayers wish to abolish federal income taxes and replace them with a tax burden that would be distributed more evenly.The fairtax bill was proposed in order to impose a national sales tax and abolish the Internal Revenue Service. The fairtax bill was carefully examined by President Bush whom did not see the fairtax as feasible. There were a myriad of problems with the fairtax bill. There was no way to estimate what the revenue would in fact be if the fairtax bill was passed. In addition, the fairtax bill was not clear in describing the manner in which the tax would be collected and how it would be enforced when taxpayers were in noncompliance.
There are several arguments that support the fairtax as a feasible means of equally dispersing the tax burden. First, the wealthy are more likely to make large purchases, thereby increasing their tax burden. Conversely, there is the argument that consumption decreases as wealth increases, which would actually increase the tax burden for the middle class.  In addition, the fairtax would encourage savings and investments because there would be no tax on items such as capital gains. 
If taxpayers are able to save more money, they will likely have more money to spend later, which increases their tax burden as their wealth increases. The fairtax would be imposed on anyone making purchases, which would include tourists and individuals that live in the country absent of a legal citizenship. In this manner, taxes are paid by any individual that enjoys benefits that are paid for through tax revenue.
The tax reform movement has struggled to propose tax ideas that would equally distribute the tax burden based on each taxpayers financial standing. The tax reform movement focuses on making sure that the lower and the middle class are able to sustain or increase their financial standing, by avoiding an unfair tax burden responsibility. 
The fairtax bill proposed ideas that would have made it almost impossible for taxpayers to avoid shouldering some of the responsibility of the tax burden.
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