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The Application of Sales Tax in the U.S. and How It Differs From Value Added Tax  


Author:  Cenap Ilter.; Michael Manahan.


Source: Volume 38, Number 02, Winter 2021 , pp.61-74(14)




Journal of Taxation of Investments

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Abstract: 

Sales and use tax (SAUT) is assessed in the United States by 45 states. Many other countries including the countries of the European Union assess a value added tax (VAT) instead. In the U.S., the method of treating SAUT when goods are purchased for resale differs from that of a VAT in a way that makes compliance more difficult. SAUT rates differ from state to state, giving rise to a lack of comparability of financial statements for similar businesses operating in different states. In the application of generally accepted accounting principles (GAAP) the amount of SAUT paid is added to the cost of an asset or expense. Doing so misstates the asset or expense value, as the SAUT is not a value-added cost, and hides from users of the financial statements the true cost of taxation to the organization.

Keywords: sales and use tax, value added tax, IRS SAUT application, European Union VAT application

Affiliations:  1: California State University Dominguez Hills; 2: California State University Dominguez Hills.

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