Sales tax
A sales tax is a tax on consumption. It is normally a certain percentage that is added onto the price of a good or service that is purchased.
Ideally a sales tax is charged exactly once on any one item. A conventional or retail sales tax attempts to achieve this by charging the tax only on retail transactions, not on businesses buying raw materials for production or finished goods for resale. A related type of tax is the value-added tax, or VAT. It is a system in which all businesses remit taxes on their sales, but they are also refunded the amount of VAT remitted by their suppliers. This prevents so-called tax "cascading," in which an item is taxed more than once as it makes its way from production to final retail sale. In addition, under VAT there is no need for government to determine which sales are taxable and which are not, since all sales--retail and wholesale--are taxed.
Most countries in the world have sales taxes or value-added taxes at either the national or local level. Countries in western Europe, especially in Scandinavia have some of the world's highest valued-added taxes. In some countries, there are multiple levels of government which each impose a sales tax. For example, sales tax in Chicago is 8.75%, consisting of 5% state, 2% city, 0.75% county and 1% regional transportation authority.
Sales taxes are generally regressive, that is, poorer people tend to pay a greater percentage of their income in sales tax than richer people, because they tend to spend a far higher percentage of their income. In some locations, items such as food, clothing, or prescription drugs are exempt from sales taxes ostensibly to alleviate the burden on the poor. Some of these exemptions (such as exemptions for clothing or prescription drugs) actually make the tax more regressive, since poorer individuals spend a smaller percentage of their incomes on these items than do richer individuals.
See Also
Sales taxes in Canada
