A sales tax is one that applies to the purchase of goods and services for consumers and to the sale of goods and services for businesses. It’s a type of consumption tax, meaning it taxes people for spending money. It’s categorized as a consumption tax because sales taxes are generally passed along to consumers at the point of sale.
A sales tax is also a type of indirect tax, which means it isn’t paid directly to the government as is income tax. Instead, retailers collect sales taxes from their consumers and then remit them to the appropriate government entity.
Imposed by both state and local governments, sales taxes make up the largest source of tax revenue for states throughout the country.