A sales tax is an example of a tax that uses a(n) tax rate structure when compared to its tax base. Which type of tax rate structure does a sales tax typically use?

• A. Progressive
• B. Variable
• C. Proportional
• D. Regressive

Answer: (C)

Verified step by step guidance

1. Understand the concept of a tax rate structure, which describes how the tax rate changes relative to the tax base (the amount being taxed).
2. Recall the definitions of the three main tax rate structures: Progressive (tax rate increases as the tax base increases), Regressive (tax rate decreases as the tax base increases), and Proportional (tax rate remains constant regardless of the tax base).
3. Identify the tax base for a sales tax, which is typically the price or value of goods and services purchased.
4. Recognize that a sales tax applies the same percentage rate to all purchases, meaning the tax rate does not change with the amount spent.
5. Conclude that since the tax rate is constant relative to the tax base, a sales tax uses a proportional tax rate structure.