It has been awhile since I’ve read any posts here, but thought I’d comment. As a specialist in sales tax, I often explain sales tax as a transaction tax. In fact, in Arizona sales tax is referred to as a transaction tax. It is the “transaction” that is being taxed and not necessarily the “item”. New Mexico has a similar “gross receipts tax”.

While it may seem that a person is being “gouged”, sales taxes make up an important part of the general fund in each jurisdiction that collect them. Transit systems, water districts, police protection, education, and every other vital public infrastructure relies on sales taxes in some way.

My question to you, Greg, is how can we pay for all the modern convenience without some form of taxation?

Here’s my question….how on God’s green earth can we (or you, Tax Girl) justify the collection of over $10,000 in taxes for a single car that started it’s valuation life at $30,000? Please don’t explain the law to me, explain the reasoning on the government collecting that much tax on one item.

The best way, however, to think of sales tax is that it is a tax on the transaction. Usually a transaction is either taxable or exempt. In Kelly’s Ford example, any materials (or components) that Ford buys to manufacture that hot new Mustang you want to buy are exempt transactions. After Ford has built the Mustang, the dealer purchases the car from Ford. That purchase is also an exempt transaction because the dealer intends to resale the vehicle to you.

Now, if you were in the business of resale, you could present the dealer with a resale certificate (depending on the jurisdiction) and that transaction would also be an exempt transaction. However, when the car is sold to a person who does not have a resale certificate, then the transaction becomes a taxable transaction.

In most states, anytime a transaction occurs there usually is an obligation by the seller who is in the business of selling, to have a permit requiring the seller to collect and remit sales tax. However, private transactions between parties who are generally not in the business of selling are (usually) subject to a transaction tax.

Most states have a provision where the party who has purchased an item privately must remit “use tax”, which is usually the same rate as the sales tax. Since car purchases are usually the largest taxable transactions that private parties will conduct, some states have closed the apparent “use tax” loophole by requiring buyers to remit tax at the time the car is retitled. New Jersey is one such state.

Double taxation is usually when there are two taxes imposed on the same transaction or income. Unfortunately, the Courts have held the subsequent resale of an item not to be double taxation because they are different transactions.

As as side note, many people erroneously believe that there is no tax on purchases you make over the Internet. If the transaction is taxable in your home state, then you are usually liable to pay the use tax on it.