Many times, people get confused about sales tax with income tax and income tax with sales. So, this article will clear all your confusion regarding it. Let’s learn about Sales tax and Income tax individually first.
Sales Tax:
A consumption tax which is imposed by the government on the sale of any goods and services is known as Sales Tax. Conventional type of sales tax can impose by the point of sale, collected by the retailer and passed on to the government. While doing the sales tax filing, the seller can also apply to remitting of the sales tax.
Most of the goods in today’s economy pass through several number of stages such as manufacturing, brokers, etc. For example, a farmer who grows cotton and jute and sells it to a manufacturing company who makes bags out of it. But for that farmer to avoid paying sales tax on the material, he must get a resale certificate from the government. This resale certificate mentions that this is not the end product for the user.
The farmer then sells it to the manufacturer who also need to obtain the resale certificate. In the final stage, the manufacturer will sell cotton bags or jute bags in the stores, these products will charge the customer sales tax along the price of those cotton and jute bags.
Income Tax:
A type of tax which the government impose on businesses and individual who generated income within their jurisdiction is known as income tax. According to the law (Income Tax Act), all the taxpayers must file for the income tax return which will determine their tax obligations yearly.
Why do the government require income tax? Well Income tax is a source of revenue for them. They use this revenue to fund services such as public services, pay any government obligations and to provide goods & services for citizens.
Difference between Sales Tax and Income Tax:
The below mentioned table shows the 5 differences between the Sales Tax and the Income Tax:
| Sales Tax | Income Tax |
| Sales tax is considered to be a pass-through type of tax which is charged on a sale. | Income tax is a direct tax which is paid by the individuals on their income earned. |
| Sales tax is paid by the individuals to the merchant at the point of sale who lives in the state. As sales tax is administered by the government on state level only. | Individuals have to pay two types of taxes: Federal Income TaxState Income Tax |
| Good & services sellers are the only one who have to deal with collection of sales taxes as well as remitting the sales tax back to the state where their business is. | Any individual who earns a certain amount of income are entitled to have to pay and deal with income tax. |
| To collect the sales tax from the consumers, the seller must apply for a sales tax permit. This permit shows the tax authority on your business and what kind of products you sell in the state. | To pay income tax, an individual must have a business license or income certificate. |
| If you pay your sales tax on time or earlier then the state might give you a discount offer on the total amount which is due. | Some small business owner can be eligible for some tax credits when they file for the income tax return. |