Which of the following best describes the difference between a sales tax and an excise tax?

• A. A sales tax is a fixed amount per unit sold, while an excise tax is a percentage of the sale price.
• B. A sales tax is only paid by producers, while an excise tax is only paid by consumers.
• C. A sales tax is applied to the total value of a purchase at the point of sale, while an excise tax is levied on specific goods such as gasoline or tobacco, often included in the price.
• D. A sales tax is collected by the federal government, while an excise tax is collected by state governments.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the definitions of sales tax and excise tax. A sales tax is generally a tax applied as a percentage of the total purchase price of goods or services at the point of sale.
2. Step 2: Recognize that an excise tax is typically a tax imposed on specific goods, such as gasoline, tobacco, or alcohol, and it can be included in the price or charged per unit.
3. Step 3: Compare the scope and application: sales tax applies broadly to many goods and services, while excise tax targets particular products often for regulatory or health reasons.
4. Step 4: Note the difference in how these taxes are calculated: sales tax is usually a percentage of the total sale value, whereas excise tax can be a fixed amount per unit or a percentage but is specific to certain goods.
5. Step 5: Conclude that the best description differentiates sales tax as a general tax on total purchase value at the point of sale, and excise tax as a specific tax on particular goods, often included in the price.