To consumers, it seems clear that they bear the cost of a sales tax on goods or services. After all, sales taxes are itemized at the bottom of invoices or receipts, even though it is the merchant who must actually send a check to some state department of revenue. Similarly, although the state and federal taxes on motor fuels are not itemized or specified on retail sales, most auto owners believe that they are the ones who ultimately pay the tax, not the gas station owner, refiner or crude producer. Many apparently are convinced that corporate income taxes come out of the pockets of some impersonal institution rather than of some individual, or perhaps that the only individuals affected are a corps of fat cats who either own the stock of, or hold executive positions in, large businesses. The truth, as many undergraduates studying microeconomics or public finance discover, is somewhat more complex.
Producers do bear at least part of the burden of excise or sales taxes.
They do so because the tax raises the apparent consumer price of the goods they sell, and there is usually some reduction in the quantity demanded when the tax is imposed or raised, and producers' sales go down. Nowhere is this more apparent than in reactions to proposals to broaden the base of state sales taxes. Sales taxes cover some retail purchases in all district states except Montana. From time to time, as states face funding squeezes, proposals surface in legislatures to lengthen the list of goods or services to which the tax applies. In many states some services, such as the preparing and serving of food in restaurants, is already subject to the sales tax.