A Value Added Tax (VAT) is a national sales tax paid by companies based on the value they add to a product at various stages of production or distribution. It is common in Europe but has been rejected by the U.S. Congress.
The tax is paid at each stage of production, but a credit is received for tax paid on inputs. For example, assuming a VAT rate of 10%, if a company sold its product for $100.00 and the cost of inputs to make that product were $80.00, they would have to pay $10.00 less an input credit of $8.00 to account for the VAT paid by their suppliers.
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