How Sales Tax Works in the US
There is no national sales tax in the United States. Instead, 45 states — plus thousands of counties, cities and special districts — each set their own piece of the rate you pay. Here is how the pieces fit together.
State tax + local tax = the rate you pay
Almost every sales tax you pay is a stack. At the bottom is the state rate — California’s 7.25% is the highest; Colorado’s 2.90% is the lowest non-zero one. On top of that, counties, cities, transit districts and other special districts can add local rates. In parts of Alabama those local taxes average 5.46% — more than the state’s own 4.00%. In Chicago, the combined rate reaches 10.25%, one of the highest of any major US city.
Five states — Alaska, Delaware, Montana, New Hampshire and Oregon — have no statewide sales tax at all. Only Alaska, of those five, lets local governments levy their own, which is why a purchase in Juneau, Alaska is taxed even though “Alaska has no sales tax”.
Why the rate depends on the exact address
Because local taxes follow local boundaries, two shops a mile apart can charge different rates if a county or district line runs between them. Most states use destination sourcing for delivered goods: the rate is the one where the buyer receives the item, not where the seller ships it from. This is also why a calculator can only give you an average for a state — the exact rate belongs to an address. Our rates-by-state table shows each state’s average local rate and its maximum, so you can see the range you are estimating within.
What gets taxed — and what doesn't
Sales tax generally applies to retail sales of physical goods. Beyond that, the rules fragment: most states exempt groceries for home consumption or tax them at a reduced rate, while restaurant meals are usually fully taxed; prescription medicines are exempt in most states; clothing is exempt in a few (such as Pennsylvania) and partly exempt in others (New York exempts clothing under $110 per item at the state level). Services are untaxed in many states but taxable in others — Hawaii, New Mexico and South Dakota tax a particularly wide range of them. The safe rule: the taxability of a specific item is a question for that state’s current rules, not for a general guide.
Use tax: the tax nobody collects at the till
When you buy something from a seller that does not collect your state’s tax — classically, a small out-of-state seller — the tax does not simply vanish. Most states impose a matching use tax on the buyer for using the item in their state, at the same rate. It is widely under-reported by individuals, but it is the law in the states that levy it, and businesses are regularly audited on it.
Nexus and the Wayfair decision
A business only has to collect a state’s sales tax if it has nexus there — a legal connection to the state. For decades that meant a physical presence: a store, office, warehouse or employee. In South Dakota v. Wayfair (2018), the US Supreme Court allowed states to require collection based on sales alone (“economic nexus”, commonly $100,000 of sales into the state). That is why online checkout tax became near-universal after 2018, and why marketplace platforms collect tax on behalf of their sellers in most states.
How to calculate sales tax by hand
Three steps: (1) find the combined rate for the place of purchase; (2) multiply the before-tax price by the rate as a decimal (8.25% → 0.0825); (3) add the result to the price. And to strip tax out of a total, divide the total by 1 + the rate as a decimal. Both directions are built into our free tools — the sales tax calculator and the reverse calculator — which run entirely in your browser.