While the government imposes the same rate on every taxpayer, the inequity lies in what is being taxed. Sales taxes apply to the purchase of retail goods, but not to most services purchased at retail. For instance, the sales tax does not apply to maid services, legal services, or even spa memberships. Because low income families purchase a much larger percentage of goods like food and clothing than services, the sales tax burdens them much more heavily. Conversely, families with a higher standard of living spend less of their income on goods and more on services.
Maid services are a good example.
The sales tax applies when you buy a vacuum cleaner but not when you hire someone to clean your house. In addition, higher income households can more easily afford to save rather than consume, while low income families must use a larger portion of their income to meet their immediate needs. The effect of the local sales tax can be seen more clearly in Chart 1 . Because sales taxes are regressive, increasing local government reliance on them for revenue hits low income families harder. The same study by ITEP finds that removing food from the local option tax base would mitigate the impact on low income North Carolinians slightly.