The Quick Answer
Sales tax is a consumption tax imposed by state and local governments on the sale of goods and certain services, calculated as a percentage of the purchase price and collected by the seller at the point of sale.
The core formulas:
- Tax amount = Purchase price x Tax rate
- Total price = Purchase price x (1 + Tax rate)
- Pre-tax price = Total price / (1 + Tax rate)
Sales tax rates in the US range from 0% (in states with no sales tax) to over 10% when state and local taxes are combined. The rate depends on where the purchase is made, not where the buyer lives.
How Sales Tax Is Calculated
The calculation is straightforward multiplication. The tax rate is expressed as a percentage and applied to the pre-tax purchase price.
Worked Example 1: Forward Calculation
You buy a $49.99 item in Houston, Texas. The state rate is 6.25% and the local rate is 2.00%, for a combined rate of 8.25%.
Tax amount = $49.99 x 0.0825 = $4.12
Total = $49.99 + $4.12 = $54.11
Or equivalently:
Total = $49.99 x 1.0825 = $54.11
You pay $54.11 at the register. The $4.12 in tax is collected by the retailer and remitted to the state and local tax authorities.
Worked Example 2: Reverse Calculation (Finding Pre-Tax Price)
Your receipt shows a total of $86.38 for a purchase in California. The combined sales tax rate is 7.25%. What was the pre-tax price?
Pre-tax price = $86.38 / 1.0725 = $80.55
Tax paid = $86.38 - $80.55 = $5.83
This reverse calculation is useful for expense reports, budgeting, or verifying receipt accuracy. The key is dividing by (1 + rate), not multiplying by (1 - rate), which would give an incorrect result.
Worked Example 3: Multiple Items with Different Tax Treatments
You buy groceries ($45.00, exempt from sales tax in this state), a bottle of wine ($18.00, taxable), and cleaning supplies ($12.00, taxable) in New York (8% combined rate).
Tax on groceries = $0 (exempt)
Tax on wine = $18.00 x 0.08 = $1.44
Tax on cleaning supplies = $12.00 x 0.08 = $0.96
Total tax = $2.40
Total bill = $45.00 + $18.00 + $12.00 + $2.40 = $77.40
State Sales Tax Rates
Highest Combined State and Local Rates
The following states have the highest average combined state and local sales tax rates, according to the Tax Foundation (2024):
| Rank | State | State Rate | Avg. Local Rate | Avg. Combined Rate |
|---|---|---|---|---|
| 1 | Louisiana | 4.45% | 5.11% | 9.56% |
| 2 | Tennessee | 7.00% | 2.55% | 9.55% |
| 3 | Arkansas | 6.50% | 2.95% | 9.45% |
| 4 | Washington | 6.50% | 2.79% | 9.29% |
| 5 | Alabama | 4.00% | 5.24% | 9.24% |
| 6 | Oklahoma | 4.50% | 4.47% | 8.97% |
| 7 | Illinois | 6.25% | 2.57% | 8.82% |
| 8 | Kansas | 6.50% | 2.19% | 8.69% |
| 9 | California | 7.25% | 1.43% | 8.68% |
| 10 | New York | 4.00% | 4.53% | 8.53% |
Note: Local rates vary within each state. Actual rates depend on the specific city and county.
States With No Sales Tax
Five states impose no state-level sales tax:
| State | Notes |
|---|---|
| Alaska | No state tax, but local jurisdictions can impose up to ~7.5% |
| Delaware | No sales tax at any level |
| Montana | No sales tax at any level (limited resort tax in some areas) |
| New Hampshire | No sales tax at any level (meals and rooms tax exists separately) |
| Oregon | No sales tax at any level |
Alaska is unique: while there is no state sales tax, over 100 local jurisdictions levy their own sales taxes, with rates typically between 1% and 7.5%.
What Gets Taxed and What Does Not
Sales tax rules vary by state, but general patterns exist:
Typically Taxable
- Electronics and appliances
- Furniture and home goods
- Clothing (in most states)
- Vehicles (often a separate motor vehicle tax)
- Prepared food and restaurant meals
- Soft drinks, candy, and snack foods (in many states)
- Digital goods and streaming services (increasingly)
Commonly Exempt
- Unprepared groceries -- Most states exempt raw food and grocery staples. Notable exceptions: Alabama, Mississippi, and South Dakota tax groceries at the full rate. Some states (like Illinois, Virginia) tax groceries at a reduced rate.
- Prescription medications -- Exempt in all states that have sales tax.
- Clothing -- Exempt in a few states including Pennsylvania, New Jersey, and Minnesota. New York exempts clothing items under $110.
- Medical devices -- Generally exempt (wheelchairs, prosthetics, hearing aids).
Source: Federation of Tax Administrators -- State Sales Tax Rates and Food & Drug Exemptions
The Gray Areas
Some items fall into complicated territory:
- Candy vs. food: Several states define candy separately from food for tax purposes. If it contains flour (like a Kit Kat), some states classify it as food (exempt). If it does not contain flour (like a Snickers in certain states), it is candy (taxable).
- Digital products: States are still catching up. Some tax digital downloads (music, e-books, software), others do not. Streaming services are increasingly being taxed.
- Software as a Service (SaaS): Taxability varies widely. Some states tax it as tangible property, others treat it as a non-taxable service.
Sales Tax vs. VAT
The United States is one of the few developed countries that uses a retail sales tax instead of a Value Added Tax (VAT). The key differences:
| Feature | US Sales Tax | VAT (Most Countries) |
|---|---|---|
| Collection point | Once, at final sale to consumer | At each stage of production |
| Included in price | No (added at register) | Yes (included in listed price) |
| Administration | State and local level | National level |
| Rate consistency | Varies by state and locality | Usually uniform national rate |
| Business credits | Not applicable | Businesses reclaim VAT on inputs |
| Typical rate range | 0-10.25% | 5-27% (EU standard rates) |
From the consumer's perspective, the practical effect is similar: you pay a percentage on top of the goods or services you buy. The main visible difference is that VAT is included in the sticker price, while US sales tax is added at checkout.
For more on how VAT works, see our VAT guide.
Sales Tax on Online Purchases
Before 2018, online retailers were only required to collect sales tax if they had a physical presence (nexus) in the buyer's state. The Supreme Court ruling in South Dakota v. Wayfair (2018) changed this.
States can now require remote sellers to collect sales tax if they exceed certain sales thresholds in the state -- typically $100,000 in sales or 200 transactions per year. As a result, most major online retailers now collect sales tax based on the delivery address.
Marketplace facilitator laws further extend this: platforms like Amazon, eBay, and Etsy are required to collect and remit sales tax on behalf of their third-party sellers in most states.
Sales Tax Holidays
Many states offer temporary sales tax holidays -- short periods (usually a weekend or a week) when certain items can be purchased tax-free. Common examples:
- Back-to-school: Clothing, school supplies, and computers (typically in July or August)
- Hurricane preparedness: Generators, batteries, and emergency supplies (common in Gulf Coast states)
- Energy Star appliances: Energy-efficient products
Sales tax holidays are state-specific and change year to year. Check your state's department of revenue website for current dates and eligible items.
Practical Tips
Keep receipts for big purchases. If you need to calculate the tax paid for expense reporting or tax deductions, the receipt is the most reliable source.
Check the rate before making large purchases. On a $1,000 purchase, the difference between a 6% and a 10% rate is $40. If you live near a state or county border, rates may differ significantly within a short drive.
Understand your exemptions. If you are buying for a tax-exempt purpose (resale, nonprofit use), you may need to provide a sales tax exemption certificate to the seller at the time of purchase.
Frequently Asked Questions
Which states have no sales tax?
Five states have no state-level sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska allows local jurisdictions to charge their own sales tax, so some Alaska cities do tax sales. The other four have no sales tax at any level.
Is food taxed with sales tax?
It depends on the state and type of food. Most states exempt unprepared grocery food from sales tax. Prepared food, restaurant meals, candy, and soft drinks are usually taxable. A few states like Alabama, Mississippi, and South Dakota tax all food at the full rate.
How do I calculate sales tax backwards from a total?
Divide the total by (1 + tax rate as a decimal). For a $86.38 total at 7.25% tax: $86.38 / 1.0725 = $80.55 pre-tax. The tax paid was $86.38 - $80.55 = $5.83.
Do online purchases have sales tax?
Yes, in most cases. Since the 2018 Supreme Court ruling in South Dakota v. Wayfair, states can require online retailers to collect sales tax even without physical presence in the state. Most major e-commerce platforms now collect sales tax based on the shipping address.
What is the difference between sales tax and VAT?
Sales tax is collected once at the final point of sale to the consumer. VAT is collected at each stage of production, with businesses claiming credits for VAT paid on their inputs. The US uses sales tax; most other countries use VAT. The end cost to the consumer is similar.
Why do sales tax rates vary within the same state?
Local jurisdictions -- cities, counties, transit districts, and special purpose districts -- add their own taxes on top of the state rate. These local additions fund services like public transit, infrastructure, and emergency services.
Is sales tax included in the listed price?
In the United States, no. Prices shown on shelves and tags are pre-tax. Sales tax is added at the point of sale. This differs from most other countries, where VAT is included in the displayed price.
Are services subject to sales tax?
It varies by state. Most states primarily tax tangible goods, but an increasing number also tax services like landscaping, repairs, dry cleaning, and digital streaming. Hawaii and New Mexico tax most services. Many states tax very few services.
What is a use tax?
Use tax applies when you purchase a taxable item without paying sales tax, typically from an out-of-state seller that did not collect it. The rate equals your local sales tax rate. Consumers are technically required to self-report and pay use tax on their state income tax return.
How is sales tax calculated on discounted items?
Sales tax applies to the actual price paid after the discount, not the original price. A $100 item marked down to $75 is taxed on $75. Manufacturer coupons may be treated differently in some states, where tax is calculated on the pre-coupon price.
Related Tools
- Sales Tax Calculator -- Calculate sales tax for any purchase amount and tax rate
- VAT Calculator -- Calculate Value Added Tax for international transactions
- Discount Calculator -- Find the final price after percentage or dollar discounts
- Price Per Unit Calculator -- Compare unit prices to find the best deal