The tax based on the profits (earnings) of a business is known as:

• A. Sales tax
• B. Payroll tax
• C. Income tax
• D. Operating tax

Answer: (C)

Income tax is the levy on earnings. When it’s based on a business’s profits, it’s the corporate income tax that applies to the net income after expenses. This differs from sales tax, which is charged on the sale of goods or services; payroll tax, which is tied to wages and salaries; and operating tax, which isn’t a standard term for taxes on profits. So, the tax on business profits is income tax.