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Sales Taxes Basics for Beginners

The Sales Taxes Basics for Beginners Part 1

October 26, 2021

How do sales taxes work, and what are they? How do they affect businesses, and how do they differ? It pays to know the basics of sales taxes.

What is a Sales Tax?

According to the Small Business Administration a sales tax is imposed by state and local governments as a retail point-of-purchase tax. The purchaser pays for services and goods. Small business owners must assess the tax, collect it, and distribute it to the appropriate governmental authorities within the prescribed time. 

Register for a Sales Tax License

Before you collect sales tax, you need a sales tax license, and your state taxing agency can help with that. States make it simple and inexpensive to register for a sales tax license, because the money they receive is a big revenue source. As soon licensed, you must begin to file sales tax returns as soon regularly.

What is my Sales Tax Rate?

Tax rates vary from state to state, which is confusing for businesses with customers in more than one state. Currently, only Alaska, Delaware, Hawaii, Montana, New Hampshire and Oregon do not impose a general statewide sales tax. There are a number of local municipalities, however, in Alaska with local sales taxes. Here is a link to a rate chart that may help. 

How is Money Collected as Sales Tax Processed?

Usually, states must pay the taxes they have collected quarterly or monthly. They must use a special tax return for salestaxes. All taxable sales must be reported, along with all sales, exempt sales and the amount of tax due. There are penalties if they are not paid on time.

Are Any Types Transactions Exempt from Sales Tax?

Yes, but this can vary from state to state, and you should check with your state government as to which goods and services sold in your state are subject to sales tax (this varies a great deal). Usually the following types of transactions are exempt:

  • Resold items – Businesses often don’t have to pay sales tax on wholesale purchases. That is because the end consumer will it.
  • Raw materials – If raw materials are made and sold for other goods, these are usually considered sales tax exempt.
  • Nonprofits – Sales made to non-profits are also exempt.

For more information, feel free to contact us.


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