Eventually, the tax of $10 will be paid by the consumers.
Sales tax is a type of transaction tax that is computed as a portion of the price of taxable goods and some taxable services. The buyer is typically responsible for paying sales tax (consumer). However, some sales taxes, often known as "transaction privilege taxes," are levied against the seller.
The relative price elasticity of supply and demand determines the tax incidence. The majority of the tax burden falls on consumers when supply is more elastic than demand. The majority of the tax burden falls on the producers when demand is more elastic than supply.
Because cigarettes are an addictive product, for instance, demand is inelastic, and taxes are primarily passed on to consumers in the form of higher prices. Price elasticity is 0 when demand is inelastic.
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