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 Value-added tax is a more sophisticated system in which all businesses collect the tax but are also refunded what they spend on the tax, so there is no need for them to determine which sales are retail and which are not.

Most countries in the world have sales taxes at either the national or local level. Countries in western Europe, especially in Scandinavia have some of the world's highest sales taxes. In some countries, there are successive 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, necessities such as food, clothing, or sanitation items are exempt from sales taxes in order to alleviate the burden on the poor.

See Also

Sales taxes in Canada