What is a sales tax primarily based on?

A sales tax is primarily based on individual sales transactions. This type of tax is levied on the sale of goods and services, meaning that it is applied at the point of purchase, when a consumer buys a product or service. The tax is calculated as a percentage of the sale price and is collected by the seller, who then remits it to the government. This system means that the tax revenue is directly linked to the volume of commerce and consumer spending, making it responsive to economic activity.

Since sales tax is specifically related to transactions involving the exchange of goods and services, it does not pertain to factors such as property ownership, annual income, or investment gains, which are taxed under different tax structures. This focus on transactions is what distinguishes sales tax from other forms of taxation.