How Does The Government Collect Sales Tax From Businesses?
Does the government always collect 100% of any sales taxes, luxury taxes, etc. from businesses? Also, what does the government do to prevent dishonest under-reporting of sold items and services?
No. There is some fraud. Business are required to report the amount that they sold, the amount that they purchased, the amount that they sold tax-free (this includes sales to the federal government and, in some states, sales to non-profit organizations), etc. There is some checking of whether the numbers seems consistent. For example, if the deduction on the company’s income tax return for “cost of goods sold” is more than the amount that it claims to have sold, that would raise red flags.
Comment by Alfie — December 8, 2009 @ 3:11 am
The business collects the sales taxes from their customers on all taxable sales. The business then files periodic sales tax returns with the state and pays the taxes collected to the state. The state keeps businesses honest with periodic sales tax audits.
Comment by StephenW — December 8, 2009 @ 3:41 am
There are always going to be dishonest businesses that pocket some of the their sales tax receipts but (hopefully) those businesses are few and far between.
The states audit businesses to check up on them.
Comment by Bostonian In MO — December 8, 2009 @ 3:44 am
Actually it’s the State Comptroller of Public Accounts that collects sales taxes and business taxes.
Comment by Wayne Z — December 8, 2009 @ 3:45 am