Sales tax, value added tax and goods and services tax are all consumption taxes: taxes charged on what people buy rather than on what they earn. If you sell anything, one of these systems almost certainly applies somewhere in your customer base. This lesson introduces the three families and how they differ in mechanics, so later lessons on obligations and setup make sense.
Sales tax
Sales tax, used across most of the United States, is charged once, at the point of final sale to the consumer. Businesses buying for resale usually present an exemption certificate and pay no tax. Rates are set by states and often by counties and cities beneath them. The seller collects the tax and remits it to the authority.
VAT and GST
Value added tax and goods and services tax, used in most other countries, are charged at every stage of the supply chain. Each business charges tax on its sales and reclaims the tax it paid on its purchases, so the net amount remitted reflects the value it added. The consumer bears the full tax at the end. Rates are usually set nationally, sometimes with reduced rates for particular categories.
Why the distinction matters to you
The system determines whether you can reclaim tax on purchases, how invoices must look, how registration works and how often you file. Businesses selling internationally may deal with more than one system at once.
Action Step
List every country, state or province where you have customers. Next to each, write which system applies: sales tax, VAT or GST. Use official government tax authority websites to confirm rather than relying on memory.
This lesson is educational and is not financial, tax, legal or insurance advice. Rules vary by jurisdiction; confirm your obligations with a qualified professional.