Sales tax refers to a tax levied by a state on the sale of certain goods and services.
Different states have different tax rates and different rules on what is subject to sales tax.
In Iowa, the basic sales tax rate is 6%. Local governments in Iowa can also assess a sales tax of up to 1%, called a local-option sales tax.
Sales tax is generally collected by the business at the point of sale. For example, if you buy a pair of shoes at the shoe store, the shoe store will collect sales tax from you.
Sales tax is not an expense of the business. The business acts as the go-between between the government and customer.
In our shoe example, let’s say the business is selling the shoes for $100 and is located in Iowa with a 6% sales tax. The business will charge you, the customer, $106 ($100 sales price plus 6% sales tax).
The business keeps the $100 and sends the $6 to the state.
For more tax terms, visit the Glossary page on this website.