Sales tax is a tax on the sale of goods and services. The tax is a percentage of the sale price, and typically ranges from 4 to 7 percent. Retail businesses generally collect the tax from their customers and send the money to the government.
The two main kinds of sales taxes are general sales taxes and excise taxes. General sales taxes charge a single rate on the sales of consumer goods. Excise taxes apply only to specific products or services. They include taxes on gasoline and tobacco.
Sales taxes raise a great deal of money and are relatively easy to administer at low rates. Governments that use general sales taxes include most state and many local governments in the United States, as well as the federal and many provincial governments in Canada. Numerous national governments in Europe, Latin America, and elsewhere do not use sales taxes, however. Instead, they raise money through a value-added tax, which the government collects from companies at every stage in an item’s production. The Canadian government uses both sales taxes and a value-added tax.
The main objection to sales taxes is that they fall heavily on low-income groups. People with low incomes spend a large percentage of their wages on consumer goods. Therefore, they may pay more sales tax in relation to their income than wealthy people do.
People disagree about whether sales over the Internet should be subject to sales tax. Internet sellers argue that it would be too expensive to comply with the different tax rules of their customers’ local governments. Other retailers complain that freedom from sales taxes would give Internet sellers an unfair advantage. Currently, many Internet purchases are subject to sales taxes, but these taxes often go unpaid.
