Types of Indirect Taxes

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Indirect taxes are taxes you pay on an almost daily basis for products and services. Most consumable products feature an indirect tax that is collected by a merchant and then forwarded on to the appropriate government agency; hence the indirect route of collection. Most people don't think about the extra money they pay when purchasing goods and are usually unaware that the money represents an indirect form of taxation.

Sales Tax

People shop everyday for groceries, clothing, electronics and household goods. At the cash register we are given a total that includes a percentage of our purchase, usually between 4 and 10 percent, that is a sales tax. This added fee is then collected and submitted to local, state and federal agencies, where it is disbursed to a variety of programs and projects. Everyday items are not the only ones that incur sales taxes. Larger ticket items such as vehicles and homes are subject to the same form of taxation. Services are susceptible to sales tax as well. For instance, if a repair person enters a home for the purpose of fixing the plumbing or any other home repair, the parts used to make the repair demand a sales tax. Often people are taxed on the whole bill, both parts and service.

Customs Tax

Customs taxes are applied to imported and exported products. These taxes are determined by the cities and states that house seaports. People are usually unaware of the taxes associated with imported and exported goods, though all consumers pay them regardless of how much income they earn. Manufacturers and merchants pass along higher prices to consumers to offset the taxes they must pay when buying or selling raw materials or finished goods.

Excise Tax

Excise taxes are placed mostly on raw materials and paid for by manufacturers at the initial stage. For manufacturers, this tax is simply a cost of doing business. To help offset the costs, they pass them to consumers on the finished goods. This creates another layer of indirect taxes that the average consumer pays.

Gas Tax

Gas tax is another indirect tax that consumers pay whenever they buy gasoline for their vehicles. Gas taxes are buried in the price per gallon. They include state and federal taxes.


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