Difference Between Service Tax & Sales Tax

by Pharaba Witt ; Updated July 27, 2017
It is not just on April 15 that you are taxed.

A sales tax is a tax that goes to the state government based on retail sales. A service tax is the same tax but is charged for providing a service as opposed to tangible goods.

History

While service taxes have been around for a while, they have become more prevalent in recent years as more states began looking for a way to increase income. As the Internet boom grew and people were exchanging services rather than sales in high volume, states became more interested in getting a piece of that money.

Purpose

Both the sales tax and service tax help build revenue for the state. Service taxes can potentially be higher, as the services they tax are usually considered “luxury” services. In other words, things you can live without.

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Problems

The sales tax is much easier to keep track of within businesses, as there is a specific revenue stream and a paper trail for sales. When it comes to service taxes, people have been against the idea for so long that they will often find a way to dodge the tax by claiming the cost is lower to pay less of the tax.

Whom the Taxes Affect

Both taxes affect virtually every person who spends money. These taxes are fees for everyday items most people do not live without.

Expanding Scope

Both types of tax have been tools for state governments in attempts to raise the number of items or services being taxed. This is done to increase revenue for states with budgetary shortfalls.

About the Author

Pharaba Witt has worked as a writer in Los Angeles for more than 10 years. She has written for websites such as USA Today, Red Beacon, LIVESTRONG, WiseGeek, Web Series Network, Nursing Daily and major film studios. When not traveling she enjoys outdoor activities such as backpacking, snowboarding, ice climbing and scuba diving. She is constantly researching equipment and seeking new challenges.

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