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Re: Can someone explain how sales tax works in the US.
Re: Can someone explain how sales tax works in the US.
Mon, 28 Oct 2002 09:54:59 -0800
Thank you Stanley, for excellent summary of the situation.
In conclusion, automation of sales taxes are now held up by at least
two fundamental problems. One, is that state and local political districts
are gerrymandered for political circumstances and even if they were not
constantly changing, the applicable geo. areas for taxes do not
correspond with any geographic classifications already established
such as zipcodes, telephone area codes, or neat latitude/longitude shapes.
So, automation of the location aspect of taxability will require very big
geographical/mapping technology, i.e. expensvie and commercial, for a
long time. There is already a competitive industry of web services that
return some tax information by address or zipcode for example.
Another problem is lack of any standardization of the semantics for
naming or describing a tax or its tax rate, the bases of what is taxable
and the bases and units of measure used for taxation (by the gallon,
by value, etc.) We don't even have a naming standard or classification
scheme for the naming of state and local taxes in the US.
And 100% of the expertise necessary for creation of such semantic
standards is employed by commercial vendors who sell solutions in
this market. And our congressmen and women? There are a few
who would like to make taxation more efficient and automated :-) and
they are *totally* overwhelmed by anti-tax components in state as well
as federal government. Since the government has grown like a cancer,
to control over half the GNP, these assorted republicans and conservatives
imagine that by blocking funding for the IRS or anything associated
with automation of transaction systems, they might someday reduce
the power of the state. sigh. Instead all they achieve is concentration
of power in financial services corporations and software companies,
and wasting the time of millions of workers in the economy...
If anybody is interested in working towards standardization of naming
and semantics of state/local taxes, classification schemes for state/local
taxes, or automation of geographic classification, I would be interested
in talking with you.
Todd Boyle CPA 9745-128th Ave NE Kirkland WA
International Accounting Services, LLC www.gldialtone.com
425-827-3107 AR/AP everywhere www.arapxml.net
Financial architect - www.escapia.com
At 12:58 AM 10/28/2002, Stanley A. Klein wrote:
The bad news regarding sales taxes is that rates are not the only
consideration. There is also the issue of what is taxable. For example,
in Maryland food and medicine (even over-the-counter medications, including
things like cough drops) are not taxable. However, restaurant meals,
carryout, and some snack foods are taxable. Services, such as automobile
repair, aren't taxable, unless that was changed in a recent session of the
Legislature (I think it was proposed). In Virginia, food and medicine are
taxable (although there has been debate over the years about making them
non-taxable). A few years ago, Maryland had a one-time "sales tax holiday"
on clothing and school supplies the month before school started. What is
taxable can change any time the Legislature meets. I think some
jurisdictions levy different rates on different kinds of items. For
example, I think that in DC the tax rate on restaurant meals is higher than
the tax rate on ordinary goods.
The good news regarding sales taxes is that an enterprise does not need to
collect sales taxes unless there is a legal "nexus" between the enterprise
and the state. I think that means the enterprise has to have a
bricks-and-mortar presence in the state.
There are also other kinds of taxes -- called excise taxes -- that act
somewhat like sales taxes. For example, taxes on liquor (which are usually
on a statewide basis) are excise taxes, not sales taxes. When you buy
liquor in Maryland, there is an excise tax built into the price and you pay
sales tax on top of that. Maryland allows local jurisdictions to levy an
entertainment tax, a hotel tax, a tax on telephone services, and other
taxes (in addition to property taxes on real estate and business equipment,
which -- together with locally levied or shared income taxes and user fees
-- are the major sources of revenue to local jurisdictions). If you want
to see an example of local revenue sources, I think Rockville's budget is
posted at www.ci.rockville.md.us.
Zip code doesn't mean much regarding taxes, other than statewide sales
taxes. For example, Rockville -- which is an incorporated municipality --
has (or had) an entertainment tax (mostly, IIRC, on movie theater
admissions). The zip code in which I live (20852) is partly in Rockville
and partly only in Montgomery County. Those of us who live in the City of
Rockville sometimes call the other part of 20852 (and other zip codes fully
or partly outside the city but served by the Rockville Post Office) "post
office Rockville." The people who live in the other part of 20852 actually
have the option of calling it "North Bethesda."
Rockville has a Mayor and Council and many municipal services. We also get
services from Montgomery County. The tax structure that supports those
services is somewhat complicated when you look into the details. A
business in this area would need to deal on a local basis with sales (and
possibly excise) taxes, personal property taxes on real estate and business
equipment, and employee income tax withholding. BTW, I have to keep "fixed
assets" property records to fill out my business personal property tax
return. The assessment of the property value is done by the state, but the
taxes are levied locally. I get a bill that combines my Rockville and
Montgomery County taxes.
Both the City and County have some special taxing districts that usually
affect the property tax rate. For example, businesses in Rockville's Town
Center area pay a special property tax to the City to support building of a
Town Center parking garage.
I don't have any employees, but if I did I would have to deal with state
and Federal income tax withholding. In Maryland every county can levy a
"piggyback" income tax that is calculated on the state income tax form.
The withholding rate is essentially differnt for each county. In some
states a municipality can also levy a local income tax.
At 06:42 AM 10/28/2002 -0500, Lawrence <address@hidden> wrote:
>A general sales tax solution in US is a very complicated thing. Best to
>have it configurable.
>In the US there are 9 home rule states. California, Colorado are two,
>the others I can not remember. Home rule states can levy taxes by what
>every geographic area suits their ends -- usually by county. For
>example, if district (a tribe of individuals) decides they would like
>to build a library, they could mandate that merchants, telephone
>companies and whoever is in their defined geograhic area, pay a special
>"building library tax."
>There are clever US individuals who have discovered that taxes are based
>on zipcodes and have moved their postoffice boxes to a lesser taxed
>area. These noncomforming individuals are probematic.
>This information may be quite dated as I have not looked into this for a
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