Future Business Leaders of America (FBLA) Accounting Practice Test

What is sales tax?

1. A charge on all bank transactions

2. Tax on the retail sale of goods and services

3. Tax deducted on cash sales only

4. A fee for using a credit card

The correct answer is: Tax on the retail sale of goods and services

Sales tax is defined as a tax imposed by the government on the retail sale of goods and services. When a consumer purchases an item or service, a percentage of the sale price is added as tax, which is then collected by the seller and remitted to the government. This tax serves as a source of revenue for states and localities, funding various public services and infrastructure. Understanding this definition helps clarify why the other choices do not accurately describe sales tax. A charge on all bank transactions refers to banking fees, which are unrelated to the purchase of goods and services. Tax deducted on cash sales only suggests that sales tax applies exclusively to cash transactions, which is misleading, as sales tax is applicable to all sales transactions, regardless of payment method. A fee for using a credit card pertains to transaction fees charged by credit card companies, which is distinct from a sales tax levied on purchases.