The government levies a consumption tax known as a sales tax on the purchase of goods and services. At the point of sale, a standard sales tax is imposed, collected by the shop, and paid to the government. A company is liable for sales taxes in a particular jurisdiction if it has a nexus there, which, depending on the local rules, can be a physical location, an employee, an affiliate, or some other presence.
Only the final consumer of a good or service is required to pay conventional or retail sales taxes. Due to the fact that most products in contemporary economies go through a number of manufacturing phases that are frequently handled by multiple organizations, a lot of documentation is required to show who is ultimately responsible for paying sales tax. Let’s take the scenario where a sheep farmer sells wool to a business that makes yarn. The yarn manufacturer needs a resale certificate from the government proving that it is not the end user in order to avoid paying sales tax.
The yarn manufacturer then sells their goods to a clothing manufacturer, who is also required to obtain a resale certificate. Last but not least, the clothing manufacturer sells fuzzy socks to a retail establishment, which will further charge the consumer sales tax. When states, counties, and municipalities each levy their own sales taxes, there are several jurisdictions that charge various sales taxes that frequently overlap. Use taxes, which are levied on locals who buy goods from other jurisdictions, are closely related to sales taxes. These are typically set at the same rate as sales taxes, but because they are hard to enforce, they are only used in reality for significant purchases of tangible goods.