we are faced with the concept of “sales tax”. It also turned out that in America there is no customary VAT.
We decided to understand this strange and incomprehensible for our compatriots peculiarities of taxation and find out what a sales tax is and why there is no VAT in the USA.
VAT vs Sales Tax
The value added tax is an indirect tax that is included in the price of goods, works and services. Tax payers are both individuals and legal entities. But as a result of the reimbursement of VAT during production and commercial activities, the burden of tax payment lies entirely on the final consumers.
For the first time, the value added tax was introduced in France in 1958 and at the present time it is applied in almost 140 countries of the world. However, some countries refused to implement such a convenient, powerful, and most importantly, regular way to replenish the state budget.
In countries where there is no VAT, there is another indirect tax – Sales tax or sales tax levied at the time of purchase of the goods or services. For the final consumer, the sales tax is equivalent to our VAT. But, in contrast to the value added tax, the sales tax is retained only at the retail level, and is calculated, as a rule, by multiplying the purchase price by the applicable tax rate.
Everything that you buy (food, clothes, furniture) or consume (go to a restaurant, beauty salon, repair a car) is subject to sales tax. In this case, you will not see this tax on the price tag – it is not included in the price of the goods and you recognize the full purchase price at the checkout.
Features of taxation in America
A striking example of the use of sales tax is the United States of America, where combined taxation is used.
The tax system of the country consists of:
Federal taxes – these taxes are mandatory for all residents of the United States.
State taxes – they are paid by residents of a particular state, and since each state independently regulates the availability and rate of its taxes, in five US states (Alaska, Delaware, Montana, New Hampshire, Oregon) there is no such tax.
Local taxes – Local taxes may be the sum of local taxes of the county, city, transport authority …
So when they say that there is no tax in any state, it means that there is no state tax. But federal taxes are present. And, as a rule, local taxes too – they are in 38 states and sometimes exceed the state tax.
The tax rate in the country is also not the same. Its value may depend on:
State – the same product purchased in different states, may be subject to different taxes.
Prevalence of products – the less prevalent the product, the higher the tax.
The origin of the goods – the import tax is higher.
As a result of combinations of several taxes set at different levels, the total sales tax varies and varies from state to state. However, retail sales taxes are one of the most transparent ways to collect tax revenues.
Another feature of US taxation is the availability of goods and services that are exempt from sales tax or taxed at preferential rates. For example, food in grocery stores, agricultural supplies, prescription drugs, goods purchased for further production …
Nevertheless, studies show that most consumers try to make purchases, especially large ones, or in places with low taxes (for example, in small shops of suburbs) or, on the contrary, in large shopping centers (which often have promotions and discounts). And it is in those states in which there is no sales tax.
Sales Tax and Online Shopping
In accordance with the laws of the United States, a tax is imposed on goods sold by a “real” store. Therefore, in 1992, the Supreme Court exempted Internet sales from sales tax if the online store that sold the goods does not have a physical location in the state of the buyer. Naturally, the majority of Americans all these years have preferred to buy on Amazon, eBay and other online sites, where there is neither Sales tax, nor customs tax, which was present in some states when shopping from abroad.
In 2013, the Senate made an attempt to pass a law allowing for the imposition of sales tax on Internet purchases. He even got the support of sellers such as Walmart and Amazon. But under pressure from various retailers, taxpayer protection organizations and some large online stores (for example, eBay), the law was never passed.
However, in 2017, the issue of taxation of online sales again came to the Supreme Court. As a result, on June 21, 2018, the Supreme Court of the United States of America ruled that the modern development of the Internet allows determining the location of an online store and now states can levy a tax on purchases, even if the seller does not have a physical presence on the buyer’s state.
Why there is no VAT in the USA
As you can see, America’s tax system is quite complicated. The USA is a federation. It consists of 50 states, which are divided into districts, city offices and town councils. Washington is a separate district of Columbia. In addition, the United States has a number of island territories with its own tax systems.
But some analysts believe that VAT will be introduced in America after all. The value added tax generates profits at all stages of production, which gives the state control and confidence in income. It is more convenient for the state than the sales tax.
And, of course, there were attempts to introduce fixed VAT in the USA, but none of them were crowned with success. This is usually explained by the fact that fully-fledged VAT can work only under a centralized tax system, while in the USA centralization is not provided for by the Constitution. Each state and each city can impose “their” taxes, in connection with which the administration of VAT would be a very complicated process.
Another very important point – in America for tax non-payment is severely punished (for annual non-payment they can impose a fine in the amount of your annual income). Therefore, there is a minimum number of tax evaders. In addition, the federal budget of the United States is formed primarily at the expense of personal income tax. And since the income in the country is high, so are the payments to the treasury significant. Accordingly, the state regularly replenishes its budget.
That is why for a long time fifty states “live their own lives,” setting their own tax rates. And yes – the VAT in the United States of America is zero, since there is simply no such tax in the country.