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Sales tax

A sales tax is a tax based on a percentage of the selling price of goods and/or services.

Expanded Definition

In the United States, sales taxes are generally levied by state and/or local governments. The rate at which items are taxed is set as a percentage of the retail price paid. This tax is collected by the vendor (or seller), and then paid to the governing agency. Generally speaking, not all goods and services are taxed at the point of sale. As an example, certain food items and medicines tend to be exempt.

The sales tax is also referred to as a "consumption tax." This is because the tax rate paid by any individual or company is directly related to the total dollar-amount of taxable goods and services that each "consumes," or purchases.

The sales tax rate is not the same in all states. For instance, as of January 1, 2008, in the state of California, the base state sales tax is set at 7.25%. Local governments may levy an additional percentage. In Los Angeles County, an additional 1.00% is levied and collected on purchases made within the county's borders, for a total of 8.25%. In Orange County, an additional 0.50% is levied, for a total of 7.75% sales tax on taxable items purchased within its borders.

So an item selling for $100 in Los Angeles County would require the purchaser to pay a total of $108.25 to the seller. That same item bought in Orange County would cost a total of $107.75.

Some states, such as Oregon and Alaska (among others), have no state sales tax levied on purchases as of January 1, 2008. However, local governments may still levy sales taxes in those states.

Sales taxes are used to fund portions of the governmental budget.

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