What is Retail Sales Tax?

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  • Written By: wiseGEEK Writer
  • Edited By: O. Wallace
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  • Last Modified Date: 29 February 2020
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A retail sales tax or simply, sales tax, is charged on consumption, usually at point of purchase. If you buy a vacuum cleaner at the local Big Box store, you’re likely to be charge a retail sales tax, which represents a percentage of the price, then added to the total. This percentage may be distributed to several government agencies. Part of it may go to a state or federal government, and part may be given to the city or county in which you make the purchase. Not all states and countries have retail sales tax laws, but many of them do.

Usually, though it may be the job of the consumer to pay the tax when they purchase certain things, it is the job of the merchant selling items to collect the tax. Sometimes merchants will offer retail sales tax free events, where consumers don’t pay the tax on the goods they purchase. This means the merchant or service provider discounts the merchandise enough to meet these tax obligations.

Under certain circumstances, consumers must pay sales tax when making a purchase of their state or country, even if no tax was paid at the time of purchase. Occasionally, people may also have some amounts of a retail sales tax deducted if they are from another country and are making a purchase outside of their country. This really depends on a country's laws.


As mentioned, retail sales tax and amounts may vary and are usually is applied to things like goods and services. Many places do not charge taxes on items like food purchased in stores. Different tax laws may apply if food is purchased at a sit down restaurant. There are some states within the US that do not apply a retail sales tax, such as Oregon and New Hampshire. These states do apply a tax on things like restaurant dining, and New Hampshire taxes hotel stays at a rate of 8%.

In some countries, there has been considerable discussion about eliminating other forms of taxation like income tax. Some people believe that retail sales taxes should be increased dramatically while income tax is reduced or abolished. Tax collected would then be solely based on consumption and not on income earned. The theory is that higher income earners consume more and would thus pay higher taxes. Plans to institute a consumption tax only are fairly complicated and have thus far not met with great approval in most countries.



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