[kshri24]

My answer is based on typical definition of what sales tax is. I have no idea how it is actually implemented in US and how it avoids tax pyramiding and if it actually can or not. But I know for a fact that ST has no concept of input tax credits unlike VAT/GST.

EDIT: Turns out US sales tax indeed works like I described above [1]. There are definitely some instances where B2B sales can be exempt from paying sales tax but it does not seem to be pervasive enough to be worth highlighting: because supposedly 40% of business transactions are taxed at intermediate stages (are paying sales tax at every stage).

Quoting from article:

"Some studies estimate that around 40% of the total sales tax revenue comes from taxes levied on business-to-business sales."

[1]: Reference: https://www.fonoa.com/resources/blog/vat-vs-sales-tax-where-...

[AnthonyMouse]

> because supposedly 40% of business transactions are taxed at intermediate stages (are paying sales tax at every stage)

That's not what that says.

If a business buys office furniture because it wants to furnish their offices rather than because they're in the business of selling office furniture then they pay sales tax on it even though it's a "business-to-business" transaction. This isn't any different than when they buy real estate so they have offices and then pay property tax on it. They're the end customer and the end customer pays the tax.

This results in "double taxation" (they pay the tax on the furniture, they pass the cost on to their customers as higher prices, the customers pay more tax on the higher prices), but that's the same as any other overlapping set of taxes.

What it doesn't do is cause longer supply chains to pay more in taxes, because that's the case where they can get the exemption when they're buying something for resale.

[kshri24]

> That's not what that says.

Just saw your replies to my comments.

It does say that (cascade effect where tax is added to each stage of the supply chain):

"The lack of exemption can make the business the end consumer, meaning that the sales tax burden falls on the business and cannot be credited, as there is no mechanism to do that. Therefore, taxes on intermediate stages in the supply chain on businesses may result in a cascade effect where the tax is added to each stage of the supply chain leading up to a final sale to consumers. Some studies estimate that around 40% of the total sales tax revenue comes from taxes levied on business-to-business sales."

Even the scenario you gave me is handled in VAT/GST type of systems easily through input credits. So yes what you are saying is true too but that is not cascading tax. The 40% being talked about is cascading tax that is applied on value-add.

> This results in "double taxation" (they pay the tax on the furniture, they pass the cost on to their customers as higher prices, the customers pay more tax on the higher prices), but that's the same as any other overlapping set of taxes.

No the cascading tax is not this scenario (even though the scenario you said is true too but that is not what the 40% figure represents).

> they buy real estate so they have offices and then pay property tax on it

No it is not the same thing. There are property taxes in GST/VAT regimes too. Property tax is direct tax. GST/VAT/ST is indirect tax. Both are totally different categories. You would still have to pay property tax irrespective of which indirect tax regime you are in.

> If a business buys office furniture because it wants to furnish their offices rather than because they're in the business of selling office furniture

In VAT/GST regimes, these have input credits (which can be utilized to offset output tax liability), however they are not classified as raw materials/inputs either. They would be classified as assets (specifically under the heading "plant and machinery"). So instead of being inputs for whatever you are manufacturing/producing, they would be considered for depreciation (% of the total purchase is considered expense which you can spread out over many years until asset depreciates and is salvaged).

So your scenario is correct only in the limited sense of it being purchase of assets. Whereas in both Sales Tax and VAT/GST regimes it won't be considered an input. Here we are talking purely about inputs (raw materials or other inputs) that are used directly for producing outputs (manufactured goods/value-added goods). These have cascading effects in Sales Tax regime as opposed to VAT/GST.