A sales tax is a percentage added to the price of goods and services at the point of sale

When you buy something in a store or online, the cashier or checkout screen adds a tax to your total. That tax is the sales tax—a percentage of the purchase price that goes to your state or local government. Unlike income tax, which is taken from your paycheck, sales tax is collected at the moment you hand over money for a product or service.

The tax rate varies by location. Your state sets a base rate, and your city or county may add an additional local tax on top of it. A state might have a 5% sales tax, but your county could add 1%, making your total rate 6%. Some states have no sales tax at all, while others charge as much as 10% or higher when state and local rates combine.

The seller collects the tax from you and then sends it to the government. You do not send it in yourself—it happens at the register. This makes sales tax different from income tax, property tax, or other taxes you may owe directly to a tax authority.

Key Takeaways

  • Sales tax is a percentage added to the purchase price of goods and services, collected by the seller at the time of sale.
  • The rate depends on your state and local jurisdiction, and can range from 0% to over 10% when combined.
  • Some items are exempt from sales tax in most states, including groceries, prescription medications, and medical equipment.
  • Online purchases are subject to sales tax in most states, though the rules depend on where the seller is located and where you live.
  • Sales tax is a regressive tax, meaning it takes a larger percentage of income from lower-income households than from higher-income ones.

How sales tax differs from other taxes you pay

Sales tax is a consumption tax—you pay it only when you buy something. Income tax, by contrast, is taken from your wages whether you spend the money or save it. Property tax is based on what you own, not what you purchase. Sales tax is when ready and visible: you see it added to your receipt.

Another key difference is who collects it. Your employer withholds income tax and sends it to the IRS. You pay property tax directly to your county assessor. But with sales tax, the business you are buying from acts as the collector. They hold the money temporarily and then send it to the state or local tax authority on a schedule—usually monthly or quarterly.

Sales tax also applies to a narrower set of transactions than income tax. Not everything you buy is taxed. Groceries, prescription drugs, and medical devices are typically exempt in most states. Services like haircuts, car repairs, and dental work may or may not be taxed depending on where you live.

What items are usually exempt from sales tax

Most states do not tax groceries—items you buy at a supermarket to cook at home. This includes bread, milk, vegetables, and meat. However, prepared foods, snacks, and items you eat in a restaurant are almost always taxed. The line between "grocery" and "prepared food" can be blurry; some states tax candy and soda even in a grocery store because they are considered snacks rather than staples.

Prescription medications are exempt from sales tax in all 50 states. Over-the-counter medicines like aspirin or cold medicine are taxed in some states and not others. Medical equipment—wheelchairs, hearing aids, diabetic supplies—is often exempt, though the rules vary by state and by specific item.

Clothing is taxed in most states, but some states exempt clothing below a certain price point. A few states do not tax clothing at all. Services like haircuts, plumbing repairs, and dental work are taxed in some states but not others. The safest approach is to check your state's tax authority website or ask the seller if you are unsure whether a specific item is taxed.

Why sales tax rates differ between states and cities

States set their own sales tax rates, and that rate is the baseline. Some states chose not to have a sales tax at all—Alaska, Delaware, Montana, New Hampshire, and Oregon have no state sales tax. The remaining 45 states each set their own rate, ranging from about 4% to 7.25%.

On top of the state rate, cities and counties can add their own local sales tax. This is how a state with a 5% rate can end up at 8% or 9% in certain cities. Local governments use this money to fund schools, roads, police, and other services. A person shopping in one part of a state may pay a different rate than someone shopping 20 miles away in a different county.

This patchwork system means that the same item costs different amounts depending on where you buy it. A shirt that costs $20 before tax might have $1.20 added in one city and $1.80 in another. Online retailers have had to adapt by calculating the correct rate for each customer's address at checkout.

How sales tax affects online shopping

For many years, online retailers did not collect sales tax unless they had a physical location in your state. This created a significant advantage for online shopping. A 2018 Supreme Court ruling changed this: states can now require online sellers to collect sales tax even if the seller has no store or warehouse in that state.

Today, most major online retailers collect sales tax based on your shipping address. When you buy something from Amazon, Walmart, or other large sellers, the tax is calculated for your location and added to your total. Smaller sellers and marketplaces have different rules depending on the state and the platform.

The rate applied is the rate where the item is being shipped to, not where the seller is located. If you live in a state with no sales tax but order from a seller in a state with sales tax, you typically do not pay tax. If you live in a state with sales tax and order from a seller anywhere, you usually pay your state's rate.

Why sales tax is considered regressive

A regressive tax takes a larger percentage of income from people who earn less money. Sales tax is regressive because everyone pays the same rate, but lower-income households spend a much larger share of their income on purchases. A person earning $30,000 a year might spend $25,000 on groceries, gas, and household goods. A person earning $300,000 might spend $100,000 on the same categories.

Both pay the same 6% tax rate, but the lower-income person pays 6% of $25,000 (which is $1,500), while the higher-income person pays 6% of $100,000 (which is $6,000). As a percentage of their total income, the lower-income person paid 5% of their earnings in sales tax, while the higher-income person paid 2%. The tax takes a bigger bite from the person with less money.

States sometimes try to reduce this effect by exempting groceries and medications, which lower-income households rely on more heavily. However, sales tax still remains more regressive than income tax, which increases with income level.

How to find the sales tax rate in your area

Your state's tax authority website lists the current state rate and explains which items are exempt. Search for "[your state] sales tax rate" to find the official page. The site will also show you how to find your local rate if your city or county adds an additional tax.

Many online tax calculators and sales tax lookup tools let you enter your zip code and see the combined rate. These are helpful for understanding what you will pay, though the official state website is the most reliable source for current information.

If you are buying something and unsure whether it is taxed, ask the seller or cashier. They are required to know the rules for their location and can tell you whether the item is subject to tax. For major purchases, it is worth confirming before you buy.

Frequently Asked Questions

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

No. Groceries, prescription medications, and some medical equipment are exempt in most states. Services like haircuts and car repairs are taxed in some states but not others. The specific exemptions depend on where you live, so check your state's tax authority website for a complete list.

Why is the sales tax different in different cities?

States set a base sales tax rate, and then cities and counties can add their own local tax on top of it. This allows local governments to fund schools, roads, and services without raising the state rate. The combined rate varies by location, sometimes by just a few miles.

Do I pay sales tax when I buy something online?

In most cases, yes. Large online retailers collect sales tax based on your shipping address. The rate applied is the rate in the state and city where the item is being delivered. Some smaller sellers may not collect tax, but you may owe it when you file your taxes.

Is sales tax the same as income tax?

No. Income tax is taken from your paycheck based on what you earn. Sales tax is added to purchases based on what you spend. Income tax is progressive (higher earners pay a higher percentage), while sales tax is regressive (lower-income people pay a higher percentage of their income).

Can I get a refund of sales tax I paid?

Generally, no. Sales tax is final once you buy something. However, if you return an item and get a refund, the sales tax is usually refunded as well. Some states offer sales tax refunds for specific items like energy-efficient appliances, but these are rare and have strict requirements.