Understanding sales and use tax

Businesses in Maryland are required to pay various taxes, but which types of taxes depends on the type of business. Sales and use tax are taxes paid on merchandise that is sold or rented. Only one of these taxes is applicable to each transaction. Generally, use tax is charged for the rental of tangible goods or interstate sales, while sales tax is charged for local sales and some services.

In order to collect sales tax, a business must first obtain a license. Sales tax is paid by retail customers and collected by the business proprietor to be sent to the tax authority. Wholesale businesses do not charge sales tax to their customers because it will be paid by the retail customer when the merchandise is resold.

Use tax is sometimes charged when an out-of-state customer purchases merchandise that is shipped. Most states do not charge sales tax when merchandise is purchased and shipped to other states, but use tax is due for sales when sales tax is not.

In addition to sales and use tax, other local, state and federal taxes may be required to be paid by businesses depending on the location of the business, the type of business and its legal structure, and the number of employees it has.

Business owners who sell goods are required to report and pay sales tax regularly. Failure to do so could result in tax liability that the taxing authority orders the business owner to pay. In addition, fines and penalties for late payments or underreporting could be charged. The tax authority might use ratios to estimate taxes owed when there is a dispute, which could result in a business being charged more than it actually owes. When this happens, having the assistance of an experienced attorney could be advisable.

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