Sales tax is added to your purchase at checkout, raising the final price above the sticker price you see in the store

When you buy something, the store charges you the listed price plus a percentage called sales tax. That percentage varies by state and sometimes by city or county. A $10 item might cost $10.73 in one state and $10.50 in another, depending on where you live. The tax goes to state and local governments, not to the store.

You pay sales tax on most goods — clothing, electronics, groceries in some states, restaurant meals. You do not pay it on others: prescription medications are usually exempt, and some states do not tax groceries. The rules change by location, which is why the same product costs different amounts in different places.

Key Takeaways

  • Sales tax rates range from zero percent in five states to over 10 percent in some cities, so the final price you pay depends on where you shop.
  • The tax is calculated on the sticker price and added at checkout, meaning your total bill is higher than the shelf price you saw.
  • Some items are taxed and others are not — groceries, medications, and clothing have different rules depending on your state.
  • Online purchases now usually include sales tax at checkout, even when buying from out-of-state sellers.
  • Sales tax hits lower-income households harder because they spend a larger share of their money on taxed goods.

How sales tax rates differ by location

Five states have no sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Most other states charge between 4 and 7 percent. But the rate you actually pay depends on more than just your state. Cities and counties add their own local sales tax on top of the state rate, so your total can be much higher.

Tennessee has the highest combined rate in the country at over 9.5 percent in some cities. California, Louisiana, and Arkansas also have rates above 8 percent in many areas. If you live in a place with both state and local tax, a $100 purchase might cost $109 or more. If you cross a state line to shop, you will notice the difference when ready at the register.

What gets taxed and what does not

Most states tax clothing and shoes, but a few do not. Groceries are taxed in some states and exempt in others — New York taxes prepared food but not raw groceries, while Texas taxes both. Prescription medications are exempt in all states, but over-the-counter drugs and vitamins are usually taxed.

Services are often treated differently than goods. A haircut is usually taxed, but a doctor visit is not. Car repairs are taxed in most states, but car sales themselves may be subject to a different tax called sales tax on vehicles. Digital products like e-books, streaming subscriptions, and software have inconsistent rules — some states tax them, others do not. The safest assumption is that anything physical and tangible will be taxed unless your state specifically exempts it.

The real cost of sales tax on your budget

Sales tax is invisible until you reach the checkout, which means you often plan to spend less than you actually do. If you budget $50 for groceries in a state with 7 percent tax, you will actually spend $53.50. Over a year, that difference adds up. A household that spends $30,000 on taxed goods pays $2,100 in sales tax if the rate is 7 percent.

Sales tax affects lower-income households more severely than wealthy ones. A family earning $40,000 a year spends most of that money on food, clothing, and household goods — all taxed. A family earning $200,000 spends a smaller percentage of their income on taxed goods and more on services, investments, and savings, which are often not taxed. This means sales tax takes a bigger bite out of a poor household's budget than a rich one's.

Online shopping and sales tax

For years, buying online meant avoiding sales tax if the seller was out of state. That changed in 2018 when the Supreme Court ruled that states could require online sellers to collect sales tax. Now most major retailers — Amazon, Walmart, Target — collect sales tax on online orders based on where you live, not where they are located.

Small sellers and marketplaces still have different rules. Some collect tax automatically, others do not. When you buy from a small business or a third-party seller on a marketplace, check whether tax is included in the price shown. If you are buying from out of state and tax was not collected, you may technically owe "use tax" to your state, though most people do not report it. The practical effect is that online shopping no longer saves you money on tax the way it once did.

How sales tax compares to other taxes

Sales tax is one of three main ways governments collect money from you: income tax, property tax, and sales tax. Income tax is taken from your paycheck before you see it. Property tax is paid once or twice a year on a bill. Sales tax is paid every time you buy something, in small amounts that feel painless but add up quickly.

Because sales tax is collected in small pieces at many different moments, it is straightforward to underestimate how much you pay. You notice a $5 tax on a $100 purchase, but you do not see the $2,100 you paid in sales tax over the year. Income tax and property tax come as large bills that make the total visible. Sales tax hides the total cost, which is one reason some people argue it is less transparent than other taxes.

Planning purchases across state lines

If you live near a state border, you might save money by shopping in the lower-tax state. Someone in New Jersey, which has 6.625 percent sales tax, could drive to Delaware, which has none, for large purchases like furniture or electronics. The savings on a $1,000 item would be about $66. For smaller purchases, the drive is not worth the gas.

Some people plan major purchases around tax-free holidays, which several states offer for back-to-school shopping or other categories. These holidays last a few days and exempt certain items from tax. Texas, for example, has a back-to-school tax-free weekend in August when clothing and school supplies are not taxed. If you know a holiday is coming, timing your purchase can save you money without changing where you shop.

Frequently Asked Questions

Why do different states have different sales tax rates?

States set their own tax rates based on their budget needs and tax policy. Some states rely heavily on sales tax and keep income tax low. Others do the opposite. Local governments also add their own tax to fund schools, roads, and services, which is why rates vary even within a state.

Is sales tax included in the price shown on the shelf?

No. The shelf price is before tax. Sales tax is calculated and added at checkout. This is why the amount you pay is always higher than the sticker price, except in states with no sales tax.

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

No. Prescription medications, medical devices, and some groceries are exempt in most states. Some states do not tax clothing. The rules vary by state and sometimes by city, so what is taxed where you live may differ from another location.

Can I get sales tax back if I buy something and return it?

Yes. When you return an item, the store refunds the tax along with the purchase price. If you bought something for $100 plus $7 tax and returned it, you get back $107.

Do I owe sales tax on things I buy online from other states?

Most major online retailers now collect sales tax based on where you live. If a seller does not collect it, you may technically owe "use tax" to your state, but enforcement is rare for individual purchases.