What does $4.95 + tax means?
Let us say, you bought a gift for $4.95. But the cash register shows that you have to pay $5.25 (with 6% sales tax). What is that extra money you had to pay when you bought the gift? It is called sales tax and it is required to be paid by the consumer. State and local governments charge sales tax at the point of sales on retail goods and services. You, as a consumer pay the sales tax to the retailer, who passes it to the state and local governments.
State and local governments set the tax level and decide on what percentage to charge on the selling price of the goods and services. The tax level and changes to the tax rate are hotly debated and voted by the elected officials and representatives. For example, among the 50 states,
California has the highest sales tax of 7.25% (includes 1% for the local government). The second highest at 7% are Mississippi, New Jersey, Rhode Island, and
Tennessee. The lowest sales tax is 4% that is charged by Alabama, Georgia, Hawaii (only charges to the businesses and not to the consumer), Louisiana, New York, and
Wyoming. There are five states, Alaska, Delaware, Montana, New Hampshire, and
Oregon, with no sales tax. Most of the states do not charge sales tax on food items. There is no national level sales tax.
In the 19th century, several states started to charge some sort of tax. However,
West Virginia, in 1921, was the first state to charge sales tax as we see it today. Since then, other states started to impose the sales tax and continue to do so until today.
Why do state and local governments charge sales tax? Taxes are a major source of income for the state and local governments. For example, besides sales tax, other taxes such as state income tax and real estate tax provide a good source of income for the governments. The collected taxes by the state and local governments help to pay for key services, such as, police, 911 service, fire stations, emergency services, building and maintenance of roads, bridges and public parks, and many more important services that we rely and use frequently.