Oliver pays sales tax of $7.20 on the purchase of a lamp for $120. Michelle paid sales tax of $9 on the purchase of a similar lamp for $150. Oliver's taxable income for the current year is $40,000. Michelle's taxable income is $55,000.
I.The structure of the sales tax is regressive if based on taxable income.
II.The structure of the sales tax is proportional if based on sales price.
III.The structure of the sales tax is progressive based on taxable income.
IV.The average sales tax paid on a purchase equals the marginal tax rate for this tax.

Question

Oliver pays sales tax of $7.20 on the purchase of a lamp for $120. Michelle paid sales tax of $9 on the purchase of a similar lamp for $150. Oliver's taxable income for the current year is $40,000. Michelle's taxable income is $55,000.
I.The structure of the sales tax is regressive if based on taxable income.
II.The structure of the sales tax is proportional if based on sales price.
III.The structure of the sales tax is progressive based on taxable income.
IV.The average sales tax paid on a purchase equals the marginal tax rate for this tax.
​

Quizplus · Accepted Answer

Sales tax is regressive when considered against income because it takes a larger percentage from those with lower incomes. It is proportional to the sales price, as both Oliver and Michelle paid a consistent percentage of the purchase price in tax. The average sales tax rate equals the marginal rate because the tax rate does not change with the amount spent.

Oliver Pays Sales Tax of $7