> ## Documentation Index
> Fetch the complete documentation index at: https://docs.webacy.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Tax Tokens

> Learn how tax tokens use buy, sell, and transfer fees, when transaction taxes are legitimate, and how malicious owners exploit hidden fee mechanisms.

## Overview

**Tax tokens** implement transaction fees (taxes) on buys, sells, or transfers. While some taxes are legitimate (funding development, marketing, or liquidity), malicious tokens use extreme or hidden taxes to steal from traders.

<Warning>
  Always check a token's buy and sell taxes before trading. Taxes can be modified at any time by malicious owners.
</Warning>

## 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

## Types of Token Taxes

### 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

### Sell Tax

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

### Transfer Tax

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

### Dynamic Tax

* Tax rates that change based on conditions
* Can start low and increase dramatically
* Often used in "stealth" scams

## Detection Indicators

| Tag                        | Severity | Description                   |
| -------------------------- | -------- | ----------------------------- |
| `high_buy_tax`             | High     | Buy tax exceeds normal range  |
| `high_sell_tax`            | High     | Sell tax exceeds normal range |
| `modifiable_tax`           | Medium   | Owner can change tax rates    |
| `hidden_tax`               | Critical | Undisclosed fees in contract  |
| `tax_can_exceed_threshold` | High     | Tax can be set extremely high |

## Tax Thresholds

| Tax Range | Risk Level | Notes                              |
| --------- | ---------- | ---------------------------------- |
| 0-5%      | Low        | Standard range for most tokens     |
| 5-10%     | Medium     | Higher but can be legitimate       |
| 10-20%    | High       | Unusual, verify project legitimacy |
| 20%+      | Critical   | Likely scam or soft honeypot       |

## API Example

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

Response showing tax risks:

```json theme={null}
{
  "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"
    }
  ]
}
```

## 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

## Tax Manipulation Tactics

### Bait and Switch

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

### Stealth Increase

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

### Conditional Taxes

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

## 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

## Calculating Actual Costs

When trading tax tokens:

```text theme={null}
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%)
```

## Related Concepts

* [Honeypots](/glossary/honeypots) - Tokens that prevent selling entirely
* [Rug Pulls](/glossary/rug-pulls) - Complete liquidity removal
* [Hidden Balance Update](/glossary/hidden-balance-update) - Manipulated balances