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Taxes On What You Buy

Whether you are out buying groceries, clothes, or other goods and services, there is almost always a tax imposed. The government and state levies many different taxes on things a taxpayer might purchase throughout the course of their life. This article will be focused mainly on the different ways we are taxed on the goods and services we purchase.

Sales Tax

Sales tax is arguably the most well-known type of tax the government imposes but the percentage at which we are taxed varies by state. The is a form of consumption tax levied on the retail sales of goods and services. You can almost always find these printed on the bottom of a store’s receipt, with the tax being a significant source of state and local revenue.

Facts about Sales Tax:

  • Forty-five states and the District of Colombia collect nationwide sales taxes.
  • Local sales taxes are collected In 38 states
  • The last state to change its sales tax percentage was Utah, increasing from 5.95% to 6.1%
  • The top 5 highest combined average state and local sales tax rates are, Louisiana (9.55%), Tennessee (9.547%), Arkansas (9.48%), Washington (9.29%), and Alabama (9.22%)
  • The top 5 lowest combined average state and local sales tax rates are, Alaska (1.76%), Hawaii (4.44%), Wyoming (5.22%), Wisconsin (5.43%), and Maine (5.50%)

Excise Tax

Excise taxes are imposed on a specific good or activity and compromise a small and volatile share of total tax collections. Examples of things that fall within this tax are cigarettes, alcohol, soda, gasoline, and betting/gambling.

Excise tax can sometimes be referred to as “sin taxes”, which are purposed to offset externalities. An externality is a consequence or harmful side effect which is not reflected in the cost of something. A good example of this would be the government placing a special tax on cigarettes with the hopes of reducing consumption and associated health care costs.

Facts on Excise tax:

  • The jurisdiction with the highest tax rate on cigarettes is the District of Colombia at $5.01 a pack of 20, while New York and Connecticut are tied at $4.35 per 20 pack
  • Vermont has one of the highest rates for cigars at 92% of wholesale price or up to $4.00 a cigar, depending on the cigar’s category
  • Missouri has the lowest tax rate on cigarettes at $0.17 for a 20 pack. The next lowest is Virginia at $0.30 per 20pack
  • States aren’t the only jurisdictions that impose excise taxes on cigarette and tobacco products, some counties and cities also add their taxes on top of the federal taxes that are also collected

Gross Receipt Taxes

Also known as GRTs, gross receipt taxes are applied to a company’s gross sales. Profitability and deductions for business expenses, like the cost of goods sold and compensation, are not considered. GRT is applied to business-to-business transactions as well as final consumer purchases.

GRTs are usually considered harmful for startup businesses because most startups operate at a loss of profit for the first couple of years in business. Moving away from GRTs can be a part of states’ plans for economic recovery because of how harmful these taxes can be.

Facts about Gross Receipt Taxes 

  • Nine states currently impose a gross receipt tax, they include Delaware, Michigan, Nevada, New Mexico, Ohio, Oregon, Tennessee, Texas, and Washington.
  • These taxes do not focus on final consumption as a sales tax would
    • They penalize companies that include multiple transactions in their production process

Wrap up

Whatever you are buying, there’s a good chance it will be taxed by either the county, city, or state you live in.  It is important to know the facts when it comes to sales tax as both a consumer or business owner if you want to get the most value for your dollar.

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