Today the business owners experience tough challenges to bear the burden of the tax. They do not face difficulties in terms of income tax, their concern lies in compliance with sales tax. In the 45 states of the USA, the hassles of computing, collection and finally remitting of sales tax makes the levy amount highly burdensome for the taxpayers. As a result, the business owners suffer to prevent the draining condition of essential business resources.
On another side, alongside property and income taxes, sales tax is one of the largest options to supply the state revenue. Here, you will come to know about the crucial challenges to bear the sales tax burdens.
Recommended: What is the Difference Between Sales Tax and VAT
Contents
What Challenges Make Business Sales Tax Payers Worried?
#1. Exact Location
Zip code is one of the major weapons for many businesses to come under a fixed sales tax rate of a particular location. In the United States, business owners have options up to 43,000 zip codes. So, they find this method appropriate as they can go for location-based sales tax rate defining conditions.
But, the problem lies in the execution of sales tax laws, as the municipalities, counties and districts do not maintain the zip code based rules during the charging the sales tax.
The taxpayers suffer the worst consequences of these rigid tax law conditions. And they experience tough challenges to pay the exact sales tax rate as per the 150 million addresses of the states of the USA.
#2. Method of Sourcing
The parameters of sales tax estimation depend on the ‘destination-based taxation method in the USA. This method considers the transaction sources and the shipping addresses of the products. According to this methodology, the rate of sales tax is applied as per the location of product utilization. Several states also consider the method of ‘origin sources’ to approach the rates of intrastate sales tax.
In these types of cases, the vendor’s location plays a vital role to fix the rules of sales tax estimation. As a result, retail business owners have to pay the recognition charges to avail of the sourcing rules for applications. So, the engagement of sales with both interstate customers and state customer creates the burden of sales tax.
#3. Special Taxes
The number of authorities, who impose complementary taxes according to the type of properties and specific industries, also creates obstacles in the sales tax compliance of any business organization.
For an instance, most of the states impose additional taxes on the regular rate of sales tax on few products including gasoline, diesel, etc. As well as in the cases of car rental fees, legalized distribution chains of marijuana the retailers have to pay the additional amount of tax along with the basic rate of sales tax. Besides, so many states in the USA impose a frequent levy in the form of special taxes on some particular products like telecommunications, alcohol, tobacco, etc.
#4. Type of Product
A large number of taxpayers face crucial problems, while sales tax rules change based on the particular type of products. Few types of products can be changed in quality with time. So, these products impact the application of sales tax in negative ways.
For an instance, food products get a great discount for sales tax. But prepared foods always carry a moderate amount of sales tax. As per this specific rule, the bread roll itself is not taxable but while the retailers sell bread rolls along with cream cheese topping, they come under the rules of sales tax. Here, they always experience huge difficulties to recognize the rate of applicable sales tax, while they sell taxable and non-taxable items together.
The taxing culture of services is becoming another problematic issue because in most of the states, services do not come under the sales tax applications. But, a large number of tax authorities extending their rules of sales tax for different services like interior decorations, landscaping, etc.
How To Get Rid of Sales Tax Burden?
All these challenges make the taxpayer’s job burdensome. So, the emerging concept of sales tax nexus can ease the troubles of taxpayers. According to this concept, the business owners can impose sales tax on the buyers based on the states. Therefore, having the authorization of nexus for sales tax in a state, you can collect effective sales tax rate from the buyers, as per the destination state of product utilization. The calculation of your sales tax rate will be effective on the buyer’s location also. This methodology scopes you to impose multiple sales tax on the products or services even your buyer belong from the same state.
So, the methodology of nexus based sales tax makes the tax calculation quite difficult. But, you can opt for reliable services from online platforms to estimate the proper amount of sales tax, which does not affect your business resources.