The business sector does the deed of collecting the taxes from the household sector FOR the government sector. The household sector is considered the ultimate payer of the taxes. Other taxes paid by the business sector to the government sector are considered DIRECT business taxes. These include corporate profits taxes, property taxes, and franchise taxes.

In general, sales taxes drive a wedge between the price buyers pay for production (demand price) and the price sellers receive for production (supply price). The demand price IS the market value of production measured by gross domestic product. The supply price is the opportunity cost of the resources used in production, which is factor payments and income earned by the factors (that is, national income). To the extent that sales taxes increase the demand price above the supply price, gross domestic product is greater than national income.

For example, suppose Maurice Finklestein decides to buy a Wacky Willy Stuffed Amigo from the local MegaMart Discount Warehouse Super Center that carries a "shelf price" of $10. However, Maurice needs more than $10 to complete this purchase. The reason, of course, is that the local sales tax is 5 percent. Any purchase made at the MegaMart Discount Warehouse Super Center includes the "shelf price" plus 5 percent. His total expense is thus $10.50.

This means that Maurice must obtain at least $10.50 worth of satisfaction from his Stuffed Amigo. If he receives less than $10.50, then he would not by this Stuffed Amigo. He would spend his $10.50 on a good that DID provide $10.50 worth of satisfaction. This is the essence of what gross domestic product seeks to measure. And from the expenditure approach to measuring GDP, this $10.50 is included in its entirety.

Now consider the income approach to measuring GDP. The income generated from the production of this Amigo is not $10.50, but only $10. The opportunity cost of using the four factors of production to supply this Stuffed Amigo is $10. To see why all that is needed is ask the question: "What is the minimum price MegaMart Discount Warehouse Super Center would except for this Stuffed Amigo WITHOUT SALES TAXES?" The answer, of course, is $10. This $10 covers all production cost, which is another way of saying that the factors of production (labor, capital, land, and entrepreneurship) need a total of $10 in income to produce and supply this Stuffed Amigo.

As such, the $10.50 revenue received by the MegaMart Discount Warehouse Super Center is divided in two ways. The first $10 is used to pay the factors of production, which is then included in national income. The remaining $0.50 is used to pay sales taxes.