sales tax

noun
Updated on: 26 Jul 2017

Definition of sales tax

  1. :  a tax levied on the sale of goods and services that is usually calculated as a percentage of the purchase price and collected by the seller

First Known Use of sales tax

1921


Financial Definition of SALES TAX

sales tax

What It Is

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 It Works

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.

[InvestingAnswers Feature: The Most Important Tax Changes to Know Before Filing Your Tax Return]

Why It Matters

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.

[InvestingAnswers Feature: How to Avoid an IRS Audit]


SALES TAX Defined for English Language Learners

sales tax

noun

Definition of sales tax for English Language Learners

  • : a tax that is added to the price of goods and services


SALES TAX Defined for Kids

sales tax

noun

Definition of sales tax for Students

  1. :  a tax paid by the buyer on goods bought


Law Dictionary

sales tax

noun

Legal Definition of sales tax

  1. :  a tax levied on the sale of goods and services that is usually calculated as a percentage of the purchase price and collected by the seller


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