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Definition of Sales Tax

Sales Tax Image 1

Sales Tax

A tax levied as a percentage of retail sales.



Related Terms:

Indirect Taxes

taxes paid by consumers when they buy goods and services. A sales tax is an example.


After-tax profit margin

The ratio of net income to net sales.


After-tax real rate of return

Money after-tax rate of return minus the inflation rate.


Asymmetric taxes

A situation wherein participants in a transaction have different net tax rates.


Average tax rate

taxes as a fraction of income; total taxes divided by total taxable income.



average tax rate

Total taxes owed divided by total income.


Before-tax profit margin

The ratio of net income before taxes to net sales.


Sales Tax Image 2

Break-even tax rate

The tax rate at which a party to a prospective transaction is indifferent between entering
into and not entering into the transaction.


Cash flow after interest and taxes

Net income plus depreciation.


Conditional sales contracts

Similar to equipment trust certificates except that the lender is either the
equipment manufacturer or a bank or finance company to whom the manufacturer has sold the conditional
sales contract.


Contingent deferred sales charge (CDSC)

The formal name for the load of a back-end load fund.


Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.


Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.


Cost of sales

The manufacture or purchase price of goods sold in a period or the cost of providing a service.


Current Income Tax Expense

That portion of the total income tax provision that is based on
taxable income.


Current Tax Payment Act of 1943

A federal Act requiring employers to withhold income taxes from employee pay.


Sales Tax Image 3

Days' sales in inventory ratio

The average number of days' worth of sales that is held in inventory.


Days' sales outstanding

Average collection period.



Deferred Income Tax Expense

That portion of the total income tax provision that is the result
of current-period originations and reversals of temporary differences.


Deferred Tax Asset

Future tax benefit that results from (1) the origination of a temporary difference
that causes pretax book income to be less than taxable income or (2) a loss, credit, or other
carryforward. Future tax benefits are realized on the reversal of deductible temporary differences
or the offsetting of a loss carryforward against taxable income or a tax-credit carryforward against
the current tax provision.


Deferred Tax Liability

Future tax obligation that results from the origination of a temporary
difference that causes pretax book income to exceed taxable income.


Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.


Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.


depreciation tax shield

Reduction in taxes attributable to the depreciation allowance.


Domestic International Sales Corporation (DISC)

A U.S. corporation that receives a tax incentive for
export activities.


Double-tax agreement

Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.


earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.


Sales Tax Image 4

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.



Earnings before interest and taxes (EBIT)

The operating profit before deducting interest and tax.


Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.


Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)

An earningsbased measure that, for many, serves as a surrogate for cash flow. Actually consists of working
capital provided by operations before interest and taxes.


EBDDT - Earnings before depreciation and deferred taxes

This measure is used principally by
firms in the real estate industry, with the exception of real estate investment trusts, which typically
do not pay taxes.


Effective Tax Rate

The total tax provision divided by pretax book income from continuing
operations.


Electronic Federal Tax Payment Systems (EFTPS)

An electronic funds transfer system used by businesses to remit taxes to the government.


Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.


Federal Unemployment Tax Act (FUTA)

A federal Act requiring employers to pay a tax on the wages paid to their employees, which is then used to create a
pool of funds to be used for unemployment benefits.


Foreign Sales Corporation (FSC)

A special type of corporation created by the tax Reform Act of 1984 that
is designed to provide a tax incentive for exporting U.S.-produced goods.


Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.


Gross sales

The total sales recorded prior to sales discounts and returns.


Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.


INCOME TAX

What the business paid to the IRS.


Income tax

A government tax on the income earned by an individual or corporation.


Income Tax Expense

See income tax provision.


Income Tax Provision

The expense deduction from pretax book income reported on the
income statement. It consists of both current income tax expense and deferred income tax
expense. The terms income tax expense and income tax provision are used interchangeably.


Inflation Tax

The loss in purchasing power due to inflation eroding the real value of financial assets such as cash.


Interest equalization tax

tax on foreign investment by residents of the U.S. which was abolished in 1974.


Interest tax shield

The reduction in income taxes that results from the tax-deductibility of interest payments.


interest tax shield

tax savings resulting from deductibility of interest payments.


Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).


Investment Tax Credit

A reduction in taxes offered to firms to induce them to increase investment spending.


Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.


Margin Tax Rate

The tax rate applicable to the last unit of income.


Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.


marginal tax rate

Additional taxes owed per dollar of additional income.


Marginal Tax Rate

Percent of an increase in income paid in tax.


Net sales

Total revenue, less the cost of sales returns, allowances, and discounts.


NET SALES (revenue)

The amount sold after customers’ returns, sales discounts, and other allowances are taken away from
gross sales. (Companies usually just show the net sales amount on their income statements, omitting returns, allowances, and the like.)


NUMBER OF DAYS SALES IN RECEIVABLES

(also called average collection period). The number of days of net sales that are tied up in credit sales (accounts receivable) that haven’t been collected yet.


Payroll tax expense

The amount of tax associated with salaries that an employer pays to governments (federal, state, and local).


Payroll taxes payable

The amount of payroll taxes owed to the various governments at the end of a period.


percentage of sales models

Planning model in which sales forecasts are the driving variables and most other variables are
proportional to sales.


Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.


Price/sales ratio (PS Ratio)

Determined by dividing current stock price by revenue per share (adjusted for stock splits).
Revenue per share for the P/S ratio is determined by dividing revenue for past 12 months by number of shares
outstanding.


Profit before interest and taxes (PBIT)

See EBIT.


Progressive Tax

A tax in which the rich pay a larger percentage of income than the poor. Contrast with regressive tax.


Progressive tax system

A tax system wherein the average tax rate increases for some increases in income but
never decreases with an increase in income.


Proportional Tax

A tax taking the same percentage of income regardless of the level of income.


RATIO OF NET INCOME TO NET SALES

A ratio that shows how much net income (profit) a company made on each dollar of net sales. Here’s the formula:
(Net income) / (Net sales)


RATIO OF NET SALES TO NET INCOME

A ratio that shows how much a company had to collect in net sales to make a dollar of profit. Figure it this way:
(Net sales) / (Net income)


Regressive Tax

A tax in which the poor pay a larger percentage of income than the rich. Contrast with progressive tax.


return on sales

This ratio equals net income divided by sales revenue.


Roth IRA. An IRA account whose earnings are not taxable at all under certain

circumstances.


Sales

Amounts earned by the company from the sale of merchandise or services; often used interchangeably with the term revenue.


Sales allowance

A reduction in a price that is allowed by the seller, due to a problem
with the sold product or service.


Sales charge

The fee charged by a mutual fund when purchasing shares, usually payable as a commission to
marketing agent, such as a financial advisor, who is thus compensated for his assistance to a purchaser. It
represents the difference, if any, between the share purchase price and the share net asset value.


Sales discount

A reduction in the price of a product or service that is offered by the
seller in exchange for early payment by the buyer.


Sales discounts

A contra account that offsets revenue. It represents the amount of the discounts for early payment allowed on sales.


Sales forecast

A key input to a firm's financial planning process. External sales forecasts are based on
historical experience, statistical analysis, and consideration of various macroeconomic factors.


Sales journal

A journal used to record the transactions that result in a credit to sales.


Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.


sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company


Sales returns

A contra account that offsets revenue. It represents the amount of sales made that were later returned.


Sales Revenue Revenue recognized from the sales of products as opposed to the provision of

services.


Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.


Sales-type Lease

Lease accounting used by a manufacturer who is also a lessor. Up-front gross
profit is recorded for the excess of the present value of the lease payments to be received across
a lease term over the cost to manufacture the leased equipment. Interest income also is recognized
on the lease receivable as it is earned over the lease term.


Sales value at split-off

A cost allocation methodology that allocates joint costs to joint
products in proportion to their relative sales values at the split-off point.


sales value at split-off allocation

a method of assigning joint cost to joint products that uses the relative sales values of the products at the split-off point as the proration basis; use of this method requires that all joint products
are salable at the split-off point


Short-term tax exempts

Short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.


Split-rate tax system

A tax system that taxes retained earnings at a higher rate than earnings that are
distributed as dividends.


State Disability Tax

A tax charged by selected states to maintain a disability insurance
fund, from which payments are made to employees who are unable to
work due to illness or injury.


Statutory Tax Rate

The income tax rate that is stated in income tax law. It is applied to taxable
income reported in income tax returns. The U.S. Federal statutory corporate income tax rate
starts out at 15% for taxable income up to $50,000 and rises quickly to 35%.


TANs (tax anticipation notes)

tax anticipation notes issued by states or municipalities to finance current
operations in anticipation of future tax receipts.


Tax anticipation bills (TABs)

Special bills that the Treasury occasionally issues that mature on corporate
quarterly income tax dates and can be used at face value by corporations to pay their tax liabilities.


tax benefit (of depreciation)

the amount of depreciation deductible for tax purposes multiplied by the tax rate;
the reduction in taxes caused by the deductibility of depreciation


Tax books

Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's
books follow Financial Accounting Standards Board rules.


Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.


tax deferral

postponing taxation of an amount until a future date


Tax deferral option

The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is
payable only when the gain is realized by selling the asset.


tax-deferred income

current compensation that is taxed at a future date



 

 

 

 

 

 

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