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State Sales Taxes

States collect a great portion of their revenue from state sales taxes on the sale of goods and services. Typically, states impose three types of sales tax: the vendor tax, the consumer tax and the combination vendor-consumer tax.

  1. Vendor tax-imposes a tax on the retailer or person in business. Retailers pay tax based on their revenues.
  2. Consumer tax (sales tax)-is the sales tax that a person pays when she buys an item. The retailer collects the tax at the time of sale and sends the tax money to the state. Many states have set aside certain days as "tax-free," permitting consumers to make purchases without paying sales tax on certain items such as school supplies.
  3. All persons, regardless of their income, pay the same rate of sales tax on their purchases. For this reason, some items of necessity are not taxed, such as food or prescription medicine, making those items more affordable for lower income individuals and families. Additionally, certain charitable and religious organizations are exempt from paying sales tax on their purchases.

  4. Combination tax-is the amount the consumer pays when she makes a purchase; however, the amount includes the vendor's tax of his revenues. There is no difference to the consumer-in her mind, she is paying a sales tax.

SIDEBAR: Use taxes are imposed on certain transactions that are not subject to sales tax. One of the most common use taxes that states impose on residents is the use tax on vehicles leases and rentals.