What Does Taxable Sales Mean?
Nearly every small business sells items or provides services to customers. When you operate a small business, you must have a thorough knowledge of which transactions are taxable in your state. You must also understand the procedure for collecting sales tax from customers and paying it to the proper authorities.
Definition
-
Most states impose tax on transactions that occur within their boundaries. However, not all transactions are subject to this tax. Transactions that are subject to state sales tax are referred to as "taxable sales." Each state determines its own sales tax regulations, so a sale that is taxable in one state may not be taxable in another. Most states require the seller to pay tax on eligible transactions. However, most states also allow the seller to collect sales tax from the purchaser.
Rates
-
As of July 2011, the only states that don't impose a sales tax are Oregon, New Hampshire, Montana, Delaware and Alaska. All other states impose sales tax at rates between 4 percent and 9 percent. Most states have a single tax rate applied throughout the state, but many states also allow cities and counties to impose additional tax on local taxable sales. In Texas, the state sales tax is 6.25 percent.
Nontaxable Sales
-
All states exempt some transactions from sales tax. Regulations differ by state, but most states consider sales of prescription medications to be exempt from sales tax. Some states exempt sales involving food for human consumption and sales of clothing, and some also exempt sales made to the government. If a sale is exempt from tax, sellers won't owe tax to the state government, and they can't collect tax from consumers. Texas exempts nonprepared food and drugs, both prescription and nonprescription.
Considerations
-
Many states also impose taxes on payments for services that result in the creation of tangible property, or on sales of property from other states that the purchaser will use within the state imposing the tax. If a seller fails to pay sales tax on a taxable transaction, he must remit the unpaid tax and may be subject to fines or other penalties.
References
Writer Bio
Amanda McMullen is a freelancer who has been writing professionally since 2010. She holds a bachelor's degree in mathematics and statistics and a second bachelor's degree in integrated mathematics education.