Understanding Sales Tax
A comprehensive guide to sales tax in the United States
What is Sales Tax?
Sales tax is a consumption tax imposed by state and local governments on the sale of goods and certain services. It's typically calculated as a percentage of the purchase price and collected by the retailer at the point of sale.
States with No Sales Tax
- • Delaware
- • Montana
- • New Hampshire
- • Oregon
- • Alaska (no state tax, some local)
Highest Combined Rates
- • Louisiana: 9.55%
- • Tennessee: 9.55%
- • Arkansas: 9.47%
- • Alabama: 9.25%
- • Washington: 9.23%
How Sales Tax Works
State Sales Tax
Each state sets its own base sales tax rate, ranging from 0% (no sales tax) to 7.25% (California). This is the minimum rate applied statewide.
Local Sales Tax
Cities, counties, and special districts may add additional sales tax on top of the state rate. This is why rates can vary significantly within the same state.
Tax-Exempt Items
Many states exempt certain items from sales tax, commonly including groceries, prescription medications, and clothing (varies by state).
How to Calculate Sales Tax
Sales Tax Formula
Example Calculation
For a $50 item with 8% sales tax:
- • Tax Amount = $50 × 0.08 = $4.00
- • Total Price = $50 + $4 = $54.00
Frequently Asked Questions
Is sales tax included in the displayed price?
In the United States, sales tax is typically NOT included in the displayed price. The tax is added at checkout. This differs from many other countries where prices include tax (VAT).
Do I pay sales tax on online purchases?
Yes, since the 2018 South Dakota v. Wayfair Supreme Court decision, states can require online retailers to collect sales tax even without a physical presence in that state. You pay the tax rate of your shipping address.
Are groceries taxed?
It varies by state. Many states exempt unprepared food (groceries) from sales tax, while others tax it at a reduced rate. Prepared foods and restaurant meals are typically taxed.