A commodity tax is a government charge on the sale of a good or service. It’s built into what you pay at the register or pump rather than billed to you directly, so the seller collects it and passes it to the taxing authority while you absorb the cost in the price. Forty-five states levy a general sales tax, and the federal government adds excise taxes on products like gasoline and tobacco, which together make commodity taxes one of the most common ways governments raise revenue in the United States.
How the Tax Reaches You
Commodity taxes are indirect. You never write a check to the government for them. The business you buy from adds the tax to your transaction and sends the money to the taxing authority on a set schedule. Legally, the obligation to remit belongs to the seller. Economically, the hit lands on the buyer.
Because these taxes attach to purchases rather than to what you earn or own, they only apply when money changes hands for a product or service. Someone who spends heavily pays more in commodity taxes than someone who saves, whatever their income. That consumption-based design gives governments relatively steady revenue, since consumer spending tends to hold up better than individual incomes from year to year. It’s also why commodity taxes are often called regressive: lower-income households spend a larger share of what they earn on taxable goods, so a bigger slice of their income goes to the tax.
How the Amount Is Calculated
There are two basic ways to set a commodity tax, and the difference changes both what you pay and how the revenue behaves over time.
An ad valorem tax is a percentage of the price. A 6% state sales tax on a $1,000 appliance produces $60 in tax. The pricier the item, the larger the tax bill. Revenue from ad valorem taxes rises automatically with inflation or when consumers trade up to more expensive products, with no vote required.
A specific tax is a flat dollar amount per physical unit and ignores the price. The federal excise tax on gasoline is 18.4 cents per gallon whether gas costs $2.50 or $4.00, and that rate has not changed since 1993.1Office of the Law Revision Counsel. 26 USC 4081 Imposition of Tax Specific taxes give a predictable revenue floor even when prices swing, but their real value erodes over time unless lawmakers raise them.
Broad-Based Commodity Taxes
Broad-based commodity taxes apply across most goods and services in the economy. The two main varieties are the retail sales tax and the value-added tax. The United States uses retail sales taxes at the state and local level, while more than 170 countries use a VAT instead.
Retail Sales Tax
A retail sales tax is collected once, at the final sale to the consumer. The rate varies by state and often by city or county. Most states exempt certain necessities such as groceries, prescription drugs, or clothing to soften the burden on lower-income households. Businesses that sell to final consumers collect the tax and remit it to the state on a monthly or quarterly schedule, depending on their sales volume.
Value-Added Tax
A VAT is collected at every stage of production and distribution rather than only at the final sale. Each business in the supply chain charges VAT on what it sells and takes a credit for the VAT it paid on what it bought, so tax ends up owed only on the value that business added. The United States has no federal VAT, but the structure comes up often in policy debates and matters for anyone dealing with foreign suppliers or customers, because most trading partners use one.
Selective Commodity Taxes
Selective commodity taxes, usually called excise taxes, target specific products rather than the whole marketplace. They serve two purposes at once: raising revenue and discouraging consumption of goods that carry social costs, such as tobacco, alcohol, and motor fuel.
Federal excise tax on a standard pack of 20 cigarettes works out to about $1.01, based on the statutory rate of $50.33 per thousand small cigarettes.2Office of the Law Revision Counsel. 26 USC 5701 Rate of Tax State taxes stack on top. State cigarette excise taxes run from $0.17 per pack in Missouri to $5.35 per pack in New York, with most states charging at least $1.00.3Centers for Disease Control and Prevention. STATE System Excise Tax Fact Sheet In a high-tax state, combined excise taxes on a pack can exceed the pre-tax cost of the tobacco itself.
Federal fuel taxes follow the specific-tax model: 18.4 cents per gallon on gasoline and 24.4 cents per gallon on diesel.1Office of the Law Revision Counsel. 26 USC 4081 Imposition of Tax State fuel taxes add another layer, and the combined burden can exceed 60 cents per gallon in some places. Because excise taxes are rolled into the shelf or pump price, most consumers never see them as a separate line.
Businesses that manufacture or import products subject to federal excise taxes file IRS Form 720 quarterly.4Internal Revenue Service. Instructions for Form 720 (Rev. December 2025) Certain industries also need specialized permits or tax stamps. Tobacco products, for example, must carry government-issued stamps proving the excise tax was paid before they can reach store shelves.
Who Has to Collect Sales Tax on Remote Sales
Until 2018, a state could only require a business to collect sales tax if the business had a physical presence there, such as a store, warehouse, or employee. The U.S. Supreme Court changed that in South Dakota v. Wayfair, Inc., holding that states may require remote sellers to collect and remit sales tax based on economic activity alone, with no physical footprint required.5Supreme Court of the United States. South Dakota v. Wayfair, Inc., 585 U.S. ___ (2018) The South Dakota threshold that triggered the case was $100,000 in annual sales or 200 separate transactions into the state. Most states have since adopted similar thresholds, though some have dropped the transaction count and kept only the dollar figure.
Marketplace facilitator laws layer on top. In most sales-tax states, platforms like Amazon, Etsy, and eBay are now required to collect and remit sales tax for their third-party sellers. If you sell through a marketplace, the platform handles tax for the orders it processes, but you can still be responsible for sales made through your own website or other channels.
Use Tax on Purchases That Slip Through
Use tax is the flip side of sales tax. When you buy a taxable item and the seller doesn’t charge sales tax, you technically owe the equivalent to your state as use tax. Use tax rates almost always match the state sales tax rate, and the tax exists specifically to keep people from dodging tax by shopping across borders. Since Wayfair, remote sellers collect in most situations, so consumer use-tax exposure has shrunk. It still applies to private-party sales, such as buying a car from a neighbor, and to business purchases of supplies or equipment used internally rather than resold.
Exemptions and Sales Tax Holidays
Most sales-tax states permanently exempt some combination of groceries, prescription medications, and medical devices, because those categories absorb a bigger share of lower-income household spending. Some states exempt clothing entirely; others exempt it only below a price threshold.
About 19 states also offer temporary sales tax holidays, most often timed to back-to-school shopping in late summer. During these windows, qualifying purchases are exempt from state sales tax. Categories and price caps vary, but clothing under $100 per item, school supplies under $50, and computers under $1,000 to $1,500 are common thresholds.6Federation of Tax Administrators. 2025 Sales Tax Holidays A few states hold holidays for disaster-preparedness supplies, energy-efficient appliances, or firearms.
What Happens If a Business Collects but Doesn’t Remit
When a business collects sales tax from customers, that money is not the business’s money. Legally, the seller holds it in trust for the government. That framing shapes everything about how tax agencies respond when the money doesn’t show up.
Most states require monthly or quarterly returns reporting total sales and tax collected, with larger sellers filing more often. Once filed, the business remits the balance to the state’s department of revenue. Many states offer a small vendor discount, often around 1 to 3% of tax collected, in exchange for handling the paperwork, but only if you file and pay on time.
Penalties for keeping collected taxes are unusually harsh. Section 6672 of the Internal Revenue Code imposes a trust fund recovery penalty equal to 100% of the unpaid tax on any responsible person who willfully fails to collect or pay it over.7Office of the Law Revision Counsel. 26 US Code 6672 – Failure to Collect and Pay Over Tax, or Attempt to Evade or Defeat Tax “Responsible person” is interpreted broadly. It can reach corporate officers, directors, shareholders with financial control, and even bookkeepers.8Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP)
Willfulness here does not require bad intent. If you knew the taxes were owed and used the money to pay rent, suppliers, or payroll, that qualifies. The IRS can pursue personal assets to satisfy the penalty, including federal tax liens and seizure of bank accounts or property.8Internal Revenue Service. Employment Taxes and the Trust Fund Recovery Penalty (TFRP) State penalties follow a similar logic, often with added interest, late-filing charges, and in serious cases criminal prosecution. Small business owners get into trouble here most often during cash-flow crunches, when borrowing from the sales tax account feels manageable and quickly stops being so.