Sales tax is a tax payable to the local government for services and goods sold. The sellers usually collect sales tax during purchase time under prescribed laws. The sales tax is divided into different types which are retail or conventional tax (levied on good sold to its final destination), manufacturers’ sales tax (tax by manufacturers on any tangible individual property), and wholesale sales tax (a tax levied on any personal property sold on wholesale once ready for shipment or already packed). Others include gross receipts, excise taxes, use tax, securities turnover excise, and value added tax.
The states with the highest sales tax
The states with the highest sales tax are Tennessee (9.45%), Arkansas (9.26%), Louisiana (8.91%), Alabama (8.91%), and Washington (8.89%). In Tennessee, the use and sales tax rate for items is at 7%. However, a lower rate tax of 5.25% is levied on food apart from supplements, ready-made food, and candy which attracts a 7% tax rate. It is the local sales taxes that tips the scale to at least 9%, as municipal jurisdictions are allowed to collect at a range rate of 1.5% to 2.75%. The gross use and sales tax rate of Arkansas was raised in July 2013 from 6% to 6.5%. This state also taxes towing and wrecker services such as body piercings, electrolysis, tattooing, boat storage, pet grooming, and pest control. Besides the state sales tax, Arkansas has at least 300 local taxes that are levied on different goods and services. Although the state of Louisiana has a lower sales tax rate of 4%, it is its allowance of municipalities to tax as much as 7% locally that put the local sales tax rate at 4.89%.
The states that charge higher sales tax do so to compensate other taxes that are excepted. For example, Tennessee does not levy a tax on earned income while the state of Louisiana has relatively lower income taxes. Also, state sales tax rates depend on the amount of revenue collected from a tax and the effect it has on the economy.
The uses of the sales tax and the controversies it carries
The federal government gives states the authority to decide how to collect and put the money to use. The larger portion of sales tax money goes for general funding together with income and licensing fee taxes. The state sales tax is majorly used to support health care, education, transport, and rehabilitation services. Also, every state has its specific projects funded by the state sales tax, for example, the state of Oklahoma put a portion of sales tax aside for tourism and pensions.
There have also been controversies on what should be excepted from sales tax. Some argued that necessities should not be taxed but to distinctively define what is a necessity is a challenge. For example, some states push to tax prepared foods, arguing that having someone cook for one is a luxury. The levied taxes on advertising services in the states of Florida brought a lot of legal issues. The media claimed that taxing on the services they provide violate “The First Amendment” and infringe on their constitutional rights. The conversation on what specific goods and services should be taxed is still persisting.