Sales tax is a mandatory charge applied as a percentage of the sale price of goods or services, collected by merchants and businesses on behalf of governmental tax authorities. This tax acts as a regulatory mechanism and a source of revenue for the government, helping in funding public services and infrastructure. The rate of sales tax varies depending on the jurisdiction, the nature of the goods or services, and applicable exemptions. For example, essential goods such as food or medication may be tax-exempt or taxed at a lower rate to provide affordability to the general public.
Businesses are responsible for keeping accurate records of sales tax collected and remitting the correct amount to the authorities, which is typically done monthly or quarterly in many jurisdictions. Failure to comply can result in audits, penalties, or other legal consequences. The concept of sales tax is closely associated with terms such as 'value-added tax' (VAT) or 'goods and services tax' (GST) in different regions. Individuals may encounter sales tax during everyday transactions, such as shopping for groceries or when making online purchases.
Understanding and ensuring compliance with sales tax regulations is essential for businesses to operate legally and efficiently, as well as to foster trust and transparency with their customers and the government. Examples of sales tax usage: "This item costs $100, and with a 10% sales tax, the total comes to $110." Related terms include 'GST', 'value-added tax', 'income tax', and 'tax compliance'.