Canfield Personal Finance Practice Exam

The correct answer is sales tax. When you purchase clothing or groceries, sales tax is a percentage added to the price of the item you are buying. This tax is collected by the retailer at the point of sale, and it varies by state or locality. It is designed to generate revenue for state and local governments and typically applies to most retail transactions.

In contrast, income tax is related to what you earn, rather than what you purchase, and would not apply at the time of buying clothing or groceries. Excise tax, on the other hand, is typically imposed on specific goods, such as fuel or alcohol, rather than on general retail purchases. Thus, when checking out at stores, sales tax is the relevant tax that is applied to most transactions involving tangible goods.