Eli5: how the VAT works ?



I don’t understand how online business pay this tax especially here in the US when every state has a different percentage

In: Economics

I’ve never heard of the US imposing VAT taxes like most EU countries. There’s sales tax but that’s pretty much automated by a business’ sales software.

VAT is value added tax. I know it’s a think in Europe and Canada. The government has an equation for how much a product should be taxed based on how much value the company has added.

The USA and the states don’t have VAT. They have sales tax. They determine how much a product should be taxed based on… well, politics mostly. Food is exempt, tobacco is through the nose.

Every state (and city) has their own sales tax rates for various stuff. Online stores typically don’t collect or pay this tax as they’re doing inter-state business, although California has started collecting it.