Tax Tokens

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Overview

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How Tax Tokens Work

1. Tax Implementation: Contract includes fee logic on transfers
2. Fee Collection: Percentage taken on each buy/sell/transfer
3. Distribution: Fees go to designated wallets or contracts
4. Legitimate Use: Fund development, marketing, burns, reflections
5. Malicious Use: Drain trader funds through excessive fees

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Types of Token Taxes

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Buy Tax

• Fee charged when purchasing the token
• Typically ranges from 0-10% for legitimate tokens
• Malicious tokens may have hidden or extreme buy taxes

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Sell Tax

• Fee charged when selling the token
• Often higher than buy tax in legitimate tokens
• Extreme sell taxes can trap funds (soft honeypot)

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Transfer Tax

• Fee on wallet-to-wallet transfers
• Can prevent normal token movement
• Often used to trap funds

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Dynamic Tax

• Tax rates that change based on conditions
• Can start low and increase dramatically
• Often used in “stealth” scams

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Detection Indicators

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Tax Thresholds

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API Example

curl -X GET "https://api.webacy.com/tokens/0x123...?chain=eth" \
  -H "x-api-key: YOUR_API_KEY"

{
  "overallRisk": 75.0,
  "issues": [
    {
      "tag": "high_sell_tax",
      "severity": "high",
      "description": "Sell tax of 25% detected"
    },
    {
      "tag": "modifiable_tax",
      "severity": "medium",
      "description": "Owner can modify tax rates"
    }
  ]
}

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Red Flags

• Asymmetric taxes - Low buy tax, high sell tax (soft honeypot)
• Modifiable taxes - Owner can change rates after launch
• Hidden taxes - Fees not mentioned in documentation
• Increasing taxes - Rates go up over time
• Transfer taxes - Unusual for legitimate tokens
• Complex fee structures - Multiple or stacking fees

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Tax Manipulation Tactics

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Bait and Switch

• Launch with 0% tax to attract buyers
• Increase taxes after significant volume
• Trap existing holders with high sell fees

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Stealth Increase

• Gradual tax increases over time
• Each increase seems small
• Cumulative effect traps funds

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Conditional Taxes

• Different rates for different wallets
• Insiders exempt from taxes
• Regular users pay full fees

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Protection Strategies

1. Check current taxes - Verify buy and sell rates before trading
2. Review tax modifiability - Can owner change rates?
3. Monitor for changes - Watch for tax updates post-purchase
4. Read the contract - Look for hidden fee mechanisms
5. Start small - Test with small amounts first
6. Set slippage carefully - Account for taxes in slippage settings

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Calculating Actual Costs

Actual received = Amount × (1 - buy_tax) × (1 - sell_tax)

Example: 10% buy tax, 15% sell tax
$100 purchase → $90 after buy tax
$90 sell → $76.50 after sell tax
Total loss: $23.50 (23.5%)

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Related Concepts

• Honeypots - Tokens that prevent selling entirely
• Rug Pulls - Complete liquidity removal
• Hidden Balance Update - Manipulated balances