All politics is local, as they say, and the same goes for sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. exemptions. The Indiana Department of Revenue issued a circular (PDF) this month clarifying the sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. treatment of Indy 500 racecar components:
Transactions involving the purchase, lease, or operation of a qualified part of a motor racing vehicle, described below, by professional racing teams are exempt from Indiana sales and use tax. This includes replacement and rebuilding and component parts of a racing vehicle. Tires and accessories are not eligible for the sales and use tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. if used in Indiana.
The circular goes on to define all these things. So enjoy your tax-free engines, but be ready to pay the state’s 7 percent on the tires. (And those sound like expensive tires.)
Ideally, a sales tax should be levied on all goods and services sold at retail, and to prevent distortions and hidden taxes. If a sales tax is imposed on each of those transactions, the taxes cascade or “pyramid” on top of each other, resulting in taxes on top of taxes. So it’s hard to see the economic distinction between engines and tires, as Indiana has here.
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