A sales tax is a percentage of the purchase price that you pay at checkout, collected by the seller and sent to your state or local government

Sales tax is a consumption tax — it taxes the act of buying something, not the thing itself. When you buy a shirt for $20 and the register shows $21.50, that $1.50 is sales tax. The store collects it from you and forwards it to the state or county that imposed it. You do not send it to the government yourself; the business handles that part.

Sales tax is different from income tax, which is based on what you earn, or property tax, which is based on what you own. Sales tax only applies when a transaction happens. If you own a shirt for ten years and never sell it, no sales tax applies to it again.

The rate varies by location. Some states have no sales tax at all. Others charge between 4 and 10 percent, depending on the state and sometimes the specific county or city. A few items — groceries, prescription drugs, and medical equipment — are often exempt from sales tax in many states, though the rules differ widely.

Key Takeaways

  • Sales tax is collected at the point of sale by the business, not paid directly to the government by the customer.
  • The rate depends on your state and sometimes your county or city, and it can range from zero to over 10 percent.
  • Sales tax applies to most retail purchases but often excludes groceries, prescription medications, and certain medical devices.
  • Online purchases are now subject to sales tax in most states, even when shipped from out of state.

How sales tax gets collected and reported

When you make a purchase, the seller calculates the tax based on the location where the sale happens — usually where you are standing or where the item ships to. The seller adds that amount to your bill, you pay it, and the seller keeps a record of it.

The business then files a sales tax return with the state or local tax authority, usually monthly or quarterly. The return shows how much taxable sales the business made and how much tax was collected. The business sends that tax money to the government on a schedule set by the state. If a business collects sales tax but does not send it to the government, that is tax evasion and can result in penalties and interest.

Some businesses are sales tax exempt, meaning they do not collect tax on certain sales. Nonprofits, government agencies, and some resellers may fall into this category, but they must register with the state and provide proof of their status at the time of purchase.

Sales tax versus income tax and other tax types

Income tax is based on money you earn — wages, self-employment income, investment gains. You pay it once a year (or throughout the year through withholding). Sales tax is based on money you spend, and you pay it every time you buy something taxable.

Property tax is based on the value of real estate or personal property you own. You pay it annually to your county or municipality, regardless of whether you buy or sell anything. Sales tax, by contrast, only applies when a transaction occurs.

Excise tax is a tax on specific items — gasoline, cigarettes, alcohol — and is often higher than regular sales tax. It is built into the price you see at the pump or register, so you may not notice it the way you notice sales tax added at checkout.

What is and is not subject to sales tax

Most tangible goods — clothing, electronics, furniture, household items — are subject to sales tax. Services are often not taxed, though this varies by state. A haircut might not be taxed in one state but taxed in another.

Common exemptions include groceries (in most states), prescription drugs, medical equipment like wheelchairs or hearing aids, and items bought for resale by a licensed business. Some states exempt clothing or shoes below a certain price point. A few states do not tax services at all.

Online purchases are now taxed in most states. For many years, online retailers did not collect sales tax unless they had a physical location in the buyer's state. That changed after a 2018 Supreme Court ruling, and now most major retailers collect sales tax on all orders, regardless of where they ship from. Some small sellers may still not collect it, but the trend is toward universal collection.

How sales tax affects your household budget

Sales tax increases the total cost of what you buy. A $100 purchase in a state with 7 percent sales tax costs you $107. Over time, this adds up. A household that spends $30,000 a year on taxable goods in a 7 percent tax state pays $2,100 in sales tax annually.

Sales tax is regressive, meaning it takes a larger percentage of income from lower-income households than from higher-income ones. A person earning $25,000 a year who spends most of it on taxable goods pays a higher percentage of their income in sales tax than a person earning $100,000 who saves half their income. This is why some states exempt groceries — to reduce the burden on households with lower incomes.

If you are self-employed or run a business, you may be able to avoid paying sales tax on items you buy for resale or for business use. You would register for a resale certificate with your state, which allows you to buy wholesale without paying tax. You then collect tax from your customers instead.

Sales tax in different states and localities

Five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, some of these states have other taxes — Alaska has no state sales tax but some municipalities charge local sales tax, and New Hampshire taxes meals and lodging.

States with sales tax range from 4 percent (Colorado, Georgia, Hawaii, Louisiana, New York, Wyoming) to over 7 percent (California, Tennessee, Texas). Many states allow counties or cities to add a local sales tax on top of the state rate. So a purchase in Los Angeles might be subject to California's state rate plus Los Angeles County's local rate, totaling over 9 percent.

When you move to a new state or buy something while traveling, the sales tax rate that applies is the rate where the sale takes place, not where you live. If you live in Oregon (no sales tax) and buy something in California (7.25 percent state tax plus local tax), you pay California's rate.

How to find the sales tax rate for your location

Your state's department of revenue or taxation website lists the current state sales tax rate. Many states also publish a table showing local rates by county or city. Search "[your state] sales tax rate" to find the official source.

When you shop online, the retailer's website usually shows the sales tax that will be charged based on your shipping address. If you are unsure whether an item is taxable in your state, the retailer's checkout page or customer service can tell you. You can also contact your state's tax authority directly.

If you are a business owner, your state's revenue department provides a sales tax guide for your industry. These guides explain which products and services you must tax, which are exempt, and how to file your return.

Frequently Asked Questions

Do I have to pay sales tax on everything I buy?

No. Most states exempt groceries, prescription drugs, and some medical equipment. Services like haircuts or repairs are often not taxed, though this varies by state. Online purchases are now taxed in most states. Check your state's revenue website for a full list of what is and is not taxable in your area.

Why do some states have no sales tax?

States without sales tax fund government services through other means — income tax, property tax, business taxes, or other fees. Alaska, Delaware, Montana, New Hampshire, and Oregon have chosen not to impose a state sales tax, though some allow local sales tax or tax specific items like meals or lodging.

If I buy something online from another state, do I pay sales tax?

Yes, in most cases. After 2018, online retailers are required to collect sales tax based on where the item ships to, not where the retailer is located. The tax rate that applies is the rate in your state and locality. A few small sellers may not collect it yet, but major retailers do.

Can I get a refund of sales tax I already paid?

Generally, no. Sales tax is final once you pay it. However, if you return an item and get a refund, the sales tax is refunded as part of that refund. Some states offer sales tax refunds to tourists or businesses buying items for resale, but these are rare and have specific rules.

How is sales tax different from a value-added tax?

Sales tax is collected once, at the final sale to the consumer. A value-added tax (VAT) is collected at each stage of production and distribution, with businesses getting a credit for tax paid on inputs. The United States uses sales tax; many other countries use VAT. From the consumer's perspective, both add to the final price, but VAT is collected differently.