Sales tax overview

On Behalf of | May 18, 2018 | Sales Tax

Business owners — whether they are based in Connecticut or elsewhere — have a lot of tax concerns compared to the typical person. Not only do they have to worry about filing their own income and business taxes, they also have to worry about making sure they collect and pay appropriate sales tax. This week’s column will be a quick overview of sales tax basics.

When people buy goods or services, the government requires them to pay a consumption tax. This is also known as sales tax. The tax is paid to the business and then the business owner has to pay the government. As there are often numerous companies in the chain of supply for any given product, it is possible for certain businesses to avoid sales tax by obtaining a resale certificate — meaning they are not the ones selling directly to consumers. The businesses that sell the product directly to consumers are the ones who have to charge and collect sales tax.

Sales tax rates vary by jurisdiction and nexus. A nexus is a company’s physical presence in a jurisdiction. Due to growing e-commerce, not all states require a physical presence in their state to collect taxes for products sold there.

Finally, sales tax rates can vary based on product type. For example, certain food items at a local grocery store may be exempt from tax, as they are considered necessities. Items like cigarettes or alcohol may be charged more in sales tax because they are considered indulgences.

Keeping track of who has to collect sales tax and how much can be a challenge. Those who make mistakes in their documentation and payment of these taxes may find themselves in trouble with the IRS. Business owners who have to pay sales tax in Connecticut can turn to legal counsel if they have any questions about tax laws, or if they find themselves facing audits or accusations of committing tax crimes.

Source: investopedia.com, “Sales Tax“, Accessed on May 17, 2018

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