Sales tax how much

Another claim is that detection of cheating would rise dramatically since only retailers would have to be audited, but this is misleading. Under the sales tax, businesses that make retail sales would be responsible for sending tax payments to the government, unless the buyer used a business exemption certificate, in which case no tax would be due. But the buyer would have the legal responsibility for determining whether the good is used as a business input or a consumption item.

This means that auditing and enforcement would have to focus not just on retailers, but also on all businesses that purchase from retailers, to ensure that business exemption certificates were used appropriately. One study found that, in Florida, where sales taxes have never exceeded 6 percent, 5 percent of all purchases made with business exemption certificates were used inappropriately to exempt personal consumption from taxes.

At the much higher tax rate needed in a federal sales tax, a much larger percentage of sales to businesses might be expected to fall into this category. Most importantly, the sales tax would generate tremendous opportunities for evasion. For example, in the income tax, the rate of evasion is around 15 percent.

But income where taxes are withheld and reported to government by a third party has evasion rates of around 5 percent. For income where taxes are not withheld and there is no cross-reporting, evasion is around 50 percent. Since the sales tax would feature no withholding and no cross-reporting, the possibility of high evasion rates needs to be taken quite seriously.

Advocates also assert that the sales tax would be more effective than the current system at raising revenue from the underground economy. The classic example is that of a drug dealer who currently does not pay income tax on the money he earns, but would be forced to pay taxes under a sales tax if he took the drug money and bought, for example, a Mercedes.

The problem with this argument is laid out best by Rep. In the end, neither system taxes the drug trade. Many other countries have attempted to implement a retail sales tax, or variants, and almost all have abandoned the tax and moved to a value-added tax.

Governments have gone on record as noting that at rates of more than 12 percent, sales taxes are too easy to evade.

The most optimistic assessment would be that there is no historical precedent for a country to enact a high-rate, enforceable, national sales tax. That does not mean it is impossible, but extreme caution would be appropriate.

Finally, some sales tax advocates would eliminate the IRS and have the states administer the tax. Even though the states would keep 1 percent of the revenue they collect, they would have poor incentive to collect federal taxes adequately.

For reasons of equity, efficiency, and simplicity, establishing a broad tax base is a key element of sales tax proposals. The broader the base, the lower the rate can be.

As the income tax shows, allowing specific exemptions creates a political slippery slope. Loopholes accorded to one group breed additional loopholes, by fueling demand from other groups for equally favored treatment and by weakening congressional resolve to stem the tide of special requests. But taxing a broad base will be hard. Some items are quite difficult to tax, like imputed financial services.

Other items may not be taxed for reasons of social policy. Child credits, rental payments, and some or all food may fall into this category. Finally, some sectors might not be taxed because of strong political influences—housing and health, for instance, though exemptions here may also be related to social policy. These issues create serious trade-offs. For example, taxing health insurance would raise the number of uninsured by an estimated 6 million to 14 million people.

Not taxing it would raise the sales tax rate by several points. Even with extreme political discipline in avoiding subsidies, it will be difficult to tax more than 80 percent of personal consumption. Retaining some of the major preferences in the income tax could reduce the private consumption base to about 60 percent of personal consumption. The most controversial and interesting feature of the proposed sales tax base is the provision to tax all consumption and investment purchases made by the federal, state, and local governments.

These provisions increase the tax base by more than 40 percent. But taxing government only helps keep the sales tax rate down when government is not allowed to raise the additional amount of revenues it collects to pay the tax. If this restriction takes effect, real government spending would have to fall dramatically. Tax reform could increase economic growth in several ways. A broader tax base that eliminated loopholes would help direct assets and efforts to their most productive economic use.

Lower tax rates would encourage working, saving, and investing and reduce incentives to avoid or evade taxes. Simpler taxes would reduce compliance costs. Changing the base from income to consumption would enhance the after-tax return to saving and investment. But growth projections also need to take into account transition relief. Consider a year-old who retires the day that a sales tax takes effect.

While she worked, her income exceeded her consumption and she paid income taxes. Now in retirement—when her consumption will exceed income—she will be asked to pay consumption taxes. Should she be given tax relief for consumption financed by drawing down her assets? Giving such people tax relief on their accumulated assets would raise the sales tax rate considerably and reduce growth, but not giving tax relief seems unfair.

Politically, some sort of relief seems almost a certainty. Estimates suggest a well-functioning, broad-based consumption tax, with limited personal exemptions and limited transition relief could raise income per person by up to 2 percent over 10 years.

But more generous transition relief or erosion of the tax base would drive the growth effects to zero fairly quickly.

The issue of fairness in taxation is often contentious and always subjective. The sales tax would tax consumption at a flat rate compared to the current system, which taxes income at progressive rates. Taxing consumption instead of income is often justified on grounds that consumption may be a better indicator of long-run ability to pay taxes, since income varies significantly from year to year.

But for people who face constraints on what they can borrow, the long run may not be the most relevant time period. Clearly, there is nothing inherently fair or unfair about having just a single rate. Two county taxes also apply — 0. Sales and deliveries to certain Indian reservations are subject to the Tribal sales, use and excise taxes in lieu of the state sales, use and excise tax.

City sales tax may still apply. Texas has a uniform local tax rate for remote sellers of 1. Explore some important sales tax updates coming out of Western states so you can get caught up and make any changes as necessary to keep your company compliant. See what previous Sales Tax Institute attendees have to say about their experiences. Join the Sales Tax Institute mailing list and get updates on the latest news, tips, and trainings for sales and use tax. Submitting this form will add your email address to our mailing list.

We will never share or sell your info. Click here to view our privacy policy. Search for: Search. Back to Sales Tax Updates. Chart Sales Tax Rates. State Sales Tax Rates The following chart lists the standard state level sales and use tax rates.

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What do these rates mean? The combined tax rate is the total sales tax of the jurisdiction for the address you submitted. The jurisdiction breakdown shows the different tax rates that make up the combined rate. While most taxable products are subject to the combined tax rate, some items are taxed differently at the state and local levels, so be sure to apply the correct taxes to your sale.

Calculate your total amount See your sales tax rate applied to any item price. Tax Breakdown Subtotal. Tax amount. How to use this sales tax rate First, determine who's responsible to collect and remit the sales tax amount. Get immediate access to our sales tax calculator. Use these resources to get the most from your rates.

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