Sales Tax

Written By
Paul Tracy
Updated July 3, 2021

What is Sales Tax?

Sales tax is a consumption tax levied on goods and services purchased at the retail level, paid by the consumer and submitted by the retailer to the governing tax authority.

How Does Sales Tax Work?

In the United States, the sales tax is imposed on retail items. It is paid by the consumer to the retailer, usually as a percentage of the retail cost, who submits the payment to the state.

Sales tax rate and application varies dependant on the state. Sales tax can be applied by counties, cities and regions in addition to the state sales tax.

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Why Does Sales Tax Matter?

The imposition of this tax affects the consumer directly on each purchase for nonexempt goods and services. Some consumers may find it advantageous to "cross the border" to pay less taxes than in their home state for larger purchases.

The Organization for Economic Cooperation and Development (OECD) has found that sales taxes are one of the least harmful types of taxes for the economy; they minimally hinder growth and investment.

Many consider sales tax to be regressive, as it is a larger burden and percentage of income for low-income earners.

The only federal sales tax was imposed in 2010 via the health care reform law which taxes a 10% federal sales tax on indoor tanning services.

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