Sales tax compliance may not be the most glamorous part of running a business, but it’s an essential one. With the right understanding of these sales tax terms, you’re well on your way to navigating the complexities of tax regulations with confidence and ease.
As a small to medium-scale business owner in the United States, understanding the nuances of sales tax is part of the necessary steps to comply with sales tax laws and regulations and avoid costly pitfalls. To demystify this complex landscape, we’ve compiled a glossary of 50 sales tax terminologies and their definitions to serve as your ultimate guide. By the end of this article, you’ll be equipped with the knowledge needed to confidently process the world of sales tax.
You may like to read how sales tax work or sales tax rate (Detailed Guide for Online Businesses)
Base Tax Rate
This is the initial tax rate imposed by a state or local jurisdiction on a specific type of transaction before any additional taxes or exemptions are applied.
You may like to read sales tax rate (Detailed Guide for Online Businesses)
Sales Tax Compliance
It is the act of adhering to all relevant sales tax laws and regulations, which includes timely filing of returns and payment of taxes owed.
Destination-Based Sales Tax
A tax policy where the tax rate is determined by the location of the buyer rather than the seller.
Exemption Certificate
A document that allows a buyer to make a tax-free purchase for items or services that are exempt from sales tax, typically for resale or specific purposes.
Fulfillment Center
A facility where goods are stored, picked, packed, and shipped, often leading to sales tax nexus for online retailers.
Gross Receipts Tax
A tax imposed on the total revenue generated by a business, which may or may not be synonymous with a traditional sales tax
Input Tax Credit
The credit allowed to businesses for the sales tax they have paid on purchases and expenses, which can be offset against their tax liability.
Jurisdiction
A specific geographical area, location, or political entity with its own tax laws and rates, which can affect the application of sales tax.
Kiosk Sales Tax
Sales tax applied to transactions conducted at self-service kiosks, such as those in malls or airports.
Local Option Sales Tax (LOST)
A type of sales tax that can be adopted by local governments to fund specific projects or services within their jurisdiction
Marketplace Facilitator
An entity that facilitates sales between sellers and buyers, often responsible for collecting and remitting sales tax on behalf of the sellers.
Nexus
The connection or presence a business has in a state or jurisdiction that requires it to collect and remit sales tax.
Origin-Based Sales Tax
A tax policy where the tax rate is determined by the location of the seller rather than the buyer.
Point-of-Sale (POS) System
The hardware and software used in retail stores to record sales transactions, calculate taxes, and manage inventory
Qualifying Nonprofit Organization
A nonprofit entity that may be exempt from paying sales tax on certain purchases or sales, depending on state regulations.
Resale Certificate
A document provided by a buyer to a seller to verify their intention to resell the purchased goods, thus qualifying for a sales tax exemption.
Streamlined Sales and Use Tax Agreement (SSUTA)
An agreement among states to standardize sales tax rules and simplify compliance for businesses.
Taxable Sale
A transaction on which sales tax is legally required to be imposed, typically involving the sale of tangible goods or certain services.
Use Tax
A tax imposed on the use, storage, or consumption of taxable items in a state when they were not subject to sales tax at the time of purchase.
Value-Added Tax (VAT)
A consumption tax imposed at each stage of the supply chain, with the end consumer ultimately bearing the tax burden.
Withholding Tax
A mechanism where a payer is required to deduct and remit a portion of the payment to a seller as tax, typically in B2B transactions
Xenodochial Sales Tax
Sales tax policies applied to sales made to non-resident buyers, often with specific regulations and exemptions.
Year-End Sales Tax Summary
A report summarizing a business’s sales tax transactions and liabilities for a calendar or fiscal year.
Zero-Rated Sales
Sales transactions on which the tax rate is set at 0%, resulting in no sales tax liability for the seller or buyer.
Accrual Basis Accounting
An accounting method where income and expenses are recorded when they are earned or incurred, regardless of when the actual cash is exchanged.
Brick-and-Mortar Store
A physical retail location where goods or services are sold directly to customers, subject to the sales tax rates of the specific jurisdiction.
Consumer Use Tax
A tax levied on the use or consumption of taxable items in situations where the appropriate sales tax was not collected at the time of purchase.
Digital Goods and Services
Electronically delivered products or services, such as e-books, software downloads, and streaming services, which are subject to sales tax in some states.
Economic Nexus
A legal requirement for businesses to collect and remit sales tax based on their economic activity or sales volume in a specific jurisdiction, even if they lack a physical presence.
Filing Frequency
The schedule on which businesses are required to submit their sales tax returns and payments, which can vary from monthly to annually.
General Sales and Use Tax Rate
The standard tax rate applied to most taxable items or services within a state or locality.
HST (Harmonized Sales Tax)
A consumption tax in certain Canadian provinces that combines the federal Goods and Services Tax (GST) and the provincial sales tax.
Input Service Distributor (ISD)
A concept in some tax systems that allows businesses to distribute the input tax credit across multiple locations or divisions.
Jury Duty Sales Tax Exemption
A limited exemption for sales tax on items purchased by individuals called for jury duty in some jurisdictions
Kiddie Tax
A tax law provision that may apply to a child’s unearned income, such as interest, dividends, or capital gains, at their parent’s tax rate.
Local Taxing Authority
A governing body within a specific locality that has the authority to impose and administer local sales tax.
Manufacturing Exemption
A provision that exempts certain machinery, equipment, and raw materials used in manufacturing from sales tax.
Non-Taxable Transaction Certificate (NTTC)
A certificate used by a buyer to indicate that a particular transaction is exempt from sales tax.
Over-the-Counter Sales Tax
Sales tax applied to items purchased in person at a physical location, such as a store or vendor’s office.
PST (Provincial Sales Tax)
A sales tax levied by certain Canadian provinces that operates independently of the federal GST.
Reciprocal Agreements
Agreements between states that allow businesses to collect and remit sales tax at the rate of their home state for sales made in another state.
Sales Tax Permit
A legal document that authorizes a business to collect and remit sales tax on behalf of the state or locality.
Tax Evasion
The illegal act of intentionally underreporting income, sales, or expenses to reduce tax liabilities, resulting in criminal penalties.
Uniform Sales and Use Tax Certificate
A standardized form used to document tax-exempt transactions, particularly in states that have adopted the Streamlined Sales and Use Tax Agreement.
Value-Added Tax (VAT) Registration
The process of registering a business for VAT in countries where VAT is imposed, allowing the collection and remittance of VAT on behalf of the government.
Wholesale Sales Tax
Sales tax imposed on goods sold to other businesses for resale, typically at a lower rate than the general sales tax rate.
XRT (Cross-Referencing Technology)
Technology used to cross-reference sales tax rates and rules across multiple jurisdictions, simplifying compliance for businesses.
Conclusion
As a business owner, mastering the terminology and concepts in this glossary can help you make informed decisions, reduce audit risks, and ensure tax compliance. Whether you’re dealing with economic nexus, exemptions, or value-added tax, these terms form the foundation of your sales tax education.
So, the next time you find yourself grappling with questions about sales tax, you can refer back to this comprehensive glossary. And remember, you’re not alone in this journey. Leveraging technology and expert guidance, like the sales tax management services offered by AtomicTax, can make the process significantly more manageable.
If you have any further questions or need assistance with your sales tax management, don’t hesitate to reach out to us. Your success is our success, and we’re here to help you every step of the way.