Consumption tax

A consumption tax is a levy targeted at the purchase of goods and services. This tax only occurs when an item is consumed, such as when clothes, alcohol, or school supplies are purchased. An example of a consumption tax is the sales and use tax. A different type of tax is the income tax, which is based on a person's earnings. The consumption tax tends to have a proportionally excessive impact on lower-income people, so there are a number of common consumption tax exemptions, such as for food purchases.