Sales tax is one of those things every American deals with daily, yet most people don't fully understand how it works. Why does a $10 item cost $10.85 in one city and $10.75 in the next? Why are some purchases tax-exempt while others aren't? And if you're a business owner, how do you correctly calculate, collect, and remit sales tax across multiple states? This guide covers everything — from the basic formulas to state-by-state rates and the nuances of online sales tax.
Sales tax is a consumption tax imposed by state and local governments on the sale of goods and certain services. The seller collects it at the point of purchase and remits it to the appropriate tax authority. Unlike income tax, which is based on what you earn, sales tax is based on what you spend.
In the United States, 45 states plus Washington, D.C. impose a statewide sales tax. Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — have no statewide sales tax (though Alaska allows local jurisdictions to impose their own). This patchwork of rates is what makes sales tax calculation more complex than a single percentage.
Or combined into one step:
Where the tax rate is expressed as a decimal. For example, 8.25% becomes 0.0825.
Start with the sale price of the item. Note that some items are exempt from sales tax in certain states — groceries, prescription medications, and clothing are common exemptions. If an item is exempt, the tax rate for that item is 0%, regardless of the general rate.
Sales tax in most states is actually a combination of multiple rates:
Multiply the taxable amount by the combined rate. Most jurisdictions round to the nearest cent using standard rounding rules (round up at 0.5 cents or above).
You buy a laptop for $999 in Houston, Texas.
State rate: 6.25% + Houston city rate: 2.00% = Combined: 8.25%
Sales Tax = $999 × 0.0825 = $82.42
Total = $999 + $82.42 = $1,081.42
In Pennsylvania, you buy: $50 in clothing (tax-exempt) + $30 in electronics (6% tax) + $20 in groceries (tax-exempt).
Taxable amount: $30
Sales Tax = $30 × 0.06 = $1.80
Total = $100 + $1.80 = $101.80
You purchase a $2,000 television in Chicago, Illinois.
State rate: 6.25% + Cook County: 1.75% + Chicago: 1.25% + Other: 1.75% = Combined: 11.00%
Sales Tax = $2,000 × 0.11 = $220.00
Total = $2,220.00
| State | State Rate | Avg. Local Rate | Combined Avg. |
|---|---|---|---|
| Alabama | 4.00% | 5.24% | 9.24% |
| Alaska | 0.00% | 1.76% | 1.76% |
| Arizona | 5.60% | 2.80% | 8.40% |
| Arkansas | 6.50% | 2.98% | 9.48% |
| California | 7.25% | 1.60% | 8.85% |
| Colorado | 2.90% | 4.87% | 7.77% |
| Connecticut | 6.35% | 0.00% | 6.35% |
| Delaware | 0.00% | 0.00% | 0.00% |
| Florida | 6.00% | 1.08% | 7.08% |
| Georgia | 4.00% | 3.35% | 7.35% |
| Hawaii | 4.00% | 0.44% | 4.44% |
| Idaho | 6.00% | 0.03% | 6.03% |
| Illinois | 6.25% | 2.58% | 8.83% |
| Indiana | 7.00% | 0.00% | 7.00% |
| Iowa | 6.00% | 0.83% | 6.83% |
| Kansas | 6.50% | 2.21% | 8.71% |
| Kentucky | 6.00% | 0.00% | 6.00% |
| Louisiana | 4.45% | 5.10% | 9.55% |
| Maine | 5.50% | 0.00% | 5.50% |
| Maryland | 6.00% | 0.00% | 6.00% |
| Massachusetts | 6.25% | 0.00% | 6.25% |
| Michigan | 6.00% | 0.00% | 6.00% |
| Minnesota | 6.875% | 0.56% | 7.44% |
| Mississippi | 7.00% | 0.07% | 7.07% |
| Missouri | 4.225% | 4.10% | 8.33% |
| Montana | 0.00% | 0.00% | 0.00% |
| Nebraska | 5.50% | 1.44% | 6.94% |
| Nevada | 6.85% | 1.47% | 8.32% |
| New Hampshire | 0.00% | 0.00% | 0.00% |
| New Jersey | 6.625% | 0.00% | 6.63% |
| New Mexico | 5.125% | 2.72% | 7.85% |
| New York | 4.00% | 4.52% | 8.52% |
| North Carolina | 4.75% | 2.23% | 6.98% |
| North Dakota | 5.00% | 1.86% | 6.86% |
| Ohio | 5.75% | 1.48% | 7.23% |
| Oklahoma | 4.50% | 4.45% | 8.95% |
| Oregon | 0.00% | 0.00% | 0.00% |
| Pennsylvania | 6.00% | 0.34% | 6.34% |
| Rhode Island | 7.00% | 0.00% | 7.00% |
| South Carolina | 6.00% | 1.46% | 7.46% |
| South Dakota | 4.50% | 1.90% | 6.40% |
| Tennessee | 7.00% | 2.55% | 9.55% |
| Texas | 6.25% | 2.02% | 8.27% |
| Utah | 4.85% | 1.73% | 6.58% |
| Vermont | 6.00% | 0.22% | 6.22% |
| Virginia | 5.30% | 0.73% | 6.03% |
| Washington | 6.50% | 2.73% | 9.23% |
| West Virginia | 6.00% | 0.55% | 6.55% |
| Wisconsin | 5.00% | 0.46% | 5.46% |
| Wyoming | 4.00% | 1.36% | 5.36% |
Louisiana and Tennessee share the highest average combined rate at 9.55%, while Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax.
Before South Dakota v. Wayfair (2018), online sellers only had to collect sales tax in states where they had a physical presence (a store, warehouse, or office). The Wayfair decision changed everything — now states can require online sellers to collect sales tax based on economic nexus, meaning if your sales into a state exceed a certain threshold (typically $100,000 in sales or 200 transactions), you must collect and remit that state's sales tax.
For consumers, this means most online purchases now include sales tax, just like in-store purchases. For small business owners, it means navigating potentially dozens of different tax rates, filing requirements, and exemption rules.
Not everything is taxable. Common exemptions include:
Exemptions vary dramatically by state. What's tax-free in Pennsylvania might be fully taxed in California. Always check your specific state's rules.
Sales tax is collected by the seller at the time of purchase. Use tax is the buyer's responsibility when sales tax wasn't collected — for example, when buying from an out-of-state seller who doesn't collect tax in your state, or when purchasing items for business use without paying sales tax.
Use tax is the same rate as your local sales tax. It's widely underreported, but states are increasingly enforcing it through income tax return line items and third-party data matching.
Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax. However, Alaska allows local jurisdictions to impose local sales tax, so some Alaskan communities do charge it.
No. The United States does not have a federal or national sales tax. Sales tax is imposed exclusively at the state and local levels.
Yes, in most cases. After the 2018 Wayfair Supreme Court decision, online sellers must collect sales tax in states where they have economic nexus. Major retailers like Amazon, Walmart, and Target collect sales tax in all states that impose one.
Sales tax is charged only at the final point of sale to the consumer. VAT (Value Added Tax) is charged at every stage of production and distribution. The U.S. uses sales tax; most other countries use VAT. VAT rates are typically higher (15–25%) but work differently behind the scenes.
In most U.S. states, no — the law requires that sales tax be added at the register and shown separately on the receipt. This is why American price tags don't include tax (unlike in VAT countries where tax is always included in the displayed price).
Sales tax affects every purchase you make and every sale your business completes. Understanding how to calculate it accurately — using the right combined rate, applying exemptions correctly, and distinguishing between sales tax and use tax — saves you money and keeps you compliant. For quick calculations across any state, use an online sales tax calculator. For business use, consider automating the process with dedicated sales tax software to handle the complexity of multi-state compliance.