01 / TAX BASICS

Tax basics

Different taxes answer different questions. First identify what is being taxed and who has the responsibility.

Business earnings vs. customer purchases

Income tax generally concerns taxable income, not simply the total cash received at checkout. The business structure affects how income is reported. A business can owe income tax even when another company handles its sales-tax collection.

Sales tax concerns taxable sales. A seller with a collection obligation collects it from the customer and remits it to the taxing authority. Tax collected is not extra spending money for the store.

Reference: IRS: Business taxes. Reviewed October 4, 2026.

Sales tax and use tax are partners

Sales tax and use tax: two sides of a purchase
Question	Sales tax	Use tax
What is the basic idea?	Tax on a taxable sale, collected by a seller with a collection obligation.	A complementary tax on taxable use when applicable purchase tax was not collected.
What could the buyer see?	The applicable tax collected at checkout.	No tax on the receipt, but a possible obligation to report and pay use tax.
Example	A store collects applicable tax on a customer’s taxable equipment purchase.	A Wisconsin business buys taxable equipment for its own use, and the seller collects no applicable tax.

Use tax complements sales tax; it is not normally a second full tax on a purchase already properly taxed. Credits, exemptions, and reporting rules need jurisdiction-specific review.

Reference: Wisconsin DOR: Use tax. Reviewed October 4, 2026.

A small map of the terminology

Property tax: A tax tied to taxable property, such as business real estate, under local rules. A store’s building is a separate issue from the tax shown on a customer’s order.
Transaction taxes: A broad category for taxes tied to an exchange or transaction. Sales tax is one example. The label alone does not identify the applicable rules.
Customs duties: Charges that may apply when goods enter a country. They depend on factors such as product classification, origin, value, and current trade rules.
Value-added tax (VAT): A consumption tax collected through stages of the supply chain. Businesses generally account for VAT on sales and eligible input VAT on purchases. It is not a tax on business profit.

Reference: Your Europe: VAT. Reviewed October 4, 2026.

Reference: CBP: Tips for new importers and exporters. Reviewed October 4, 2026.

The next question: where?

Knowing a tax exists does not tell you where the seller must collect it. That brings us to nexus, a connection between a business and a taxing jurisdiction.