Comment by rpep
12 days ago
Other thing is that when you’re VAT registered, as a buyer of parts you reclaim VAT on things you purchase as inputs. So the tax on the final product is what matters.
With US sales taxes you accrue tax all the way up the chain.
What?
Sales tax exemption is a thing when buying items for sale or materials for items for sale.
In many states in the US, if you go and buy materials, as a business, you pay a sales tax. There are exemptions and partial rebates, but there's nothing across all industries, and it varies by state. So if you were a farmer you might find you were exempt on fertilizer and tractors but not on a pickup truck.
That's different to a VAT, because there, as long as you're a registered business for VAT purposes, all purchases you make are exempt from VAT - either you don't pay it when you purchase and are invoiced by a business, or you can claim it back if you keep receipts. Companies have to register for VAT when revenue hits a certain amount; here in the UK it's £85k for e.g.
>either you don't pay it when you purchase and are invoiced by a business
As a business you pay VAT when you purchase. And you collect VAT when you sell. Then you pay to the government the difference between collected VAT and paid VAT. That's what the "Value Added" part means.
2 replies →
> So if you were a farmer you might find you were exempt on fertilizer and tractors but not on a pickup truck.
There are items that generate a non-deductible input tax in VAT countries (often entertainment items or cars). But usually, those will be the exception and deductible would be the default.