Quiz: How does your State Collect Sales Tax?

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About This Quiz

Sales tax is used by most states in America to generate revenue for their budgets. Compare state sales tax with other types of taxes through this quiz.

How many U.S. states charge sales tax?

The revenue from sales tax is an important source of income for 45 U.S. states and Washington, D.C. The money goes to fund all sorts of public services, including schools, courts, transportation, parks and recreation and medical care.

A sales tax on consumer goods is classified as _________.

When you earn money, you pay income tax. When you spend money on consumer goods, you pay sales tax called a consumption tax.

Which type of consumption tax is popular in other countries?

Many countries around the world use a consumption tax called Value Added Tax (VAT). Since businesses are not always the final consumer, they receive a tax credit when the goods reach the consumer.

How does a state collect sales tax?

A retailer is required to keep records of the taxes it has collected, which it sends to the state at regular intervals.

How did the Great Depression influence sales tax in the U.S.?

During the economic hardship of the 1930s, many state governments turned to sales tax to raise revenue, preferring to tax goods rather than labor.

Which Southern state instituted the first state sales tax?

In 1934, Kentucky introduced a 3 percent sales tax; more than 20 states instituted a sales tax during the 1930s.

Which West Coast state has the highest state sales tax?

At 8.75 percent, California has the highest state sales tax. Indiana, Mississippi, New Jersey, Rhode Island and Tennessee are next at 7 percent.

The suspension of sales tax for a specified period of time is called what?

Tax holidays give consumers a break and are used by states to encourage consumers to purchase certain types of items.

Who benefits from sales tax holidays?

Both consumers and retailers like tax holidays, but states can't always afford the lost tax revenue. When economic times worsen, states often repeal tax holidays.

Which group suffers most from paying sales tax?

Regressive taxes such as sales tax affect the poor more than they do the rich. The poor must spend a larger portion of their money just to make ends meet.

Which of the following exemptions lessen the sales tax burden?

Most states with sales tax provide for exemptions for certain items. Exemptions on food and prescription drugs can lessen the sales tax burden on the poor.

________ sales tax laws can be difficult and confusing for retailers doing business in more than one state.

Critics of sales tax laws cite confusing and often conflicting exemption and collection regulations to justify their opposition. Retailers doing business in more than one state usually heartily agree.

What is it called when businesses pass off the cost of the taxes they pay through the goods and services it sells to consumers?

When businesses pay sales tax on items they buy that are not raw materials for their goods or services, the added costs are passed onto consumers, who pay a tax when buying the product or service. This is a form of double taxation.

Which of the following are services that might be taxed to raise state revenue?

Services are a much bigger part of the economy than they were when sales tax was first introduced. Legislators in different states have tried to impose a tax on certain services such as telephones, cable TV and legal services, but consumers remain resistant to such a tax.

How has the Internet affected state sales tax collection?

Internet shopping allows consumers to purchase goods in other states and avoid paying sales tax in many instances. Downloading music, movies and software from the Internet is another way of getting products without paying sales tax.

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