Definition: A tax imposed by a city, state or country on the retail price of an item. Sales tax is collected by the retailer and paid to the government.
Sales taxes are charged at varying rates. Often sales taxes will provide specific exemptions, for certain classes of merchandise or customer groups for example. Usually service businesses are actually exempt from sales tax altogether.
Since sales tax is charged in addition to the price of a good or service is also called an indirect tax.
In the United Kingdom, sales tax is called VAT.
Taxation’s main function is to finance government expenditure. There are many important uses of the taxes imposed by the government. The most important expenditure perhaps is the financing of public goods and services, such as highway maintenance or public safety services.
Taxation and your bookkeeping
As a retailer, it is important to find out about the sales tax law in your area so that you may adapt your tax accounting to the local law requirements.
It may be a good idea to have a professional accountant periodically prepare your tax accounting.