How Sales Tax Works in the US
In the United States, the price on the shelf is usually not the price you pay. Sales tax is added at checkout, and the rate depends on exactly where the sale takes place.
There is no national sales tax
Sales tax is set by states and local governments, not by the federal government. That produces thousands of different rates across the country.
- Most states charge a statewide sales tax.
- Five states do not: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska still allows local sales taxes.
- Counties, cities and special districts often add their own rate on top of the state rate.
The rate you pay is the combined rate: state plus county plus city plus any district taxes. Two stores a few miles apart can charge different rates.
How to calculate sales tax
Tax = price × rate
Total = price × (1 + rate)
For a $250 purchase at a combined rate of 8.25%:
- Tax: 250 × 0.0825 = $20.63
- Total: $270.63
Working backwards from a receipt
To find the pre-tax price from a total, divide rather than subtract:
Pre-tax price = total / (1 + rate)
$270.63 / 1.0825 = $250.00
A common mistake is to subtract 8.25% from the total. That gives $248.30, which is wrong, because the tax was calculated on the pre-tax price, not on the total.
What is taxed and what is not
Rules differ by state, but some patterns are common:
- Groceries are exempt or taxed at a reduced rate in many states. Prepared food and restaurant meals are usually taxed.
- Prescription drugs are exempt in nearly every state.
- Clothing is exempt in a few states, sometimes only below a price threshold.
- Services are taxed far less often than goods, though this varies widely.
Some states also hold sales tax holidays, typically a few days when certain items such as school supplies can be bought tax-free.
Online purchases
Since the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect sales tax. Most large online retailers now charge tax based on the delivery address, so buying online rarely avoids it.
Sales tax on a car
Vehicle purchases are taxed based on where the car will be registered, not where you buy it. In most states, the value of a trade-in is subtracted before the tax is calculated, which can save a meaningful amount.
Sales tax vs. VAT
Visitors from other countries are often surprised by tax being added at the register. In countries with a value-added tax (VAT), the tax is already included in the displayed price. US sales tax is charged once, at the final sale to the consumer, and shown as a separate line.
Quick tips
- Look up the combined rate for the ZIP code where you are buying or receiving the item.
- Budget for tax on large purchases: on a $2,000 laptop at 8%, it adds $160.
- Keep receipts for big-ticket items; in some situations state and local sales tax can be deducted on a federal return if you itemize.
Results are estimates for informational purposes only and are not financial, tax, legal or medical advice.