sales tax

sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. It may be levied each time a commodity changes hands—as from manufacturer to wholesaler, from wholesaler to retailer—and is then called a transactions, or turnover, tax. Many oppose the tax as being regressive, i.e., as placing a disproportionately heavy burden on the poor; but it yields a large revenue, and governments find it easy to collect. As of 1999, 45 states, the District of Columbia, a number of cities and counties, and many foreign countries levied sales taxes. A modern variant of the sales tax is the value-added tax.

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sales tax

Levy imposed on the sale of goods and services. A sales tax on the manufacture, purchase, sale, or consumption of a specific commodity is known as an excise tax. Though excise taxes have been used since ancient times, the general sales tax is a comparatively recent innovation. Sales taxes are ad valorem taxes, imposed “according to the value” (i.e., monetary value) of the taxable commodity. They are classified according to the levels of business activity at which they are imposed—production, wholesale, or retail. They account for significant portions of the revenue of most U.S. states and Canadian provinces. A variation of the sales tax, the value-added tax, became popular in western European countries and is widely used. Most sales taxes are borne by the consumer, since even where they are levied on production or wholesale goods, part or all of the cost is shifted to the consumer in the form of higher prices. Because the retail sales tax is considered a regressive tax, essential goods such as food, clothing, or drugs are sometimes exempted or taxed at a lower level. See also income tax; progressive tax.