The federal government does not impose a sales tax
There is no federal sales tax in the United States. The federal government collects income tax, payroll tax, and excise tax on specific goods like fuel and alcohol, but it does not add a tax at the point of sale on most items you buy in a store or online.
Sales tax is a state and local responsibility. Each state sets its own rate, and many cities and counties add their own layer on top. This is why the same item costs different amounts depending on where you buy it — the base price is the same, but the tax you pay at checkout varies by location.
Key Takeaways
- The federal government does not collect sales tax; only states and localities do.
- State sales tax rates range from zero percent in some states to over 7 percent in others, and many cities add additional local tax on top.
- Online purchases are subject to sales tax in the state where the buyer lives, regardless of where the seller is located.
- Some items like groceries, prescription medications, and clothing are exempt from sales tax in certain states, but these exemptions vary widely.
Why states handle sales tax instead of the federal government
The federal government deliberately left sales tax to the states. When the income tax system was created in the early 1900s, sales tax was seen as a state and local revenue source. The federal government has never added a national sales tax, even though some economists and policymakers have proposed it over the decades.
This division of tax authority means you deal with different rates depending on where you live and shop. A purchase in New Hampshire, which has no sales tax, costs less than the same purchase in Tennessee, where the combined state and local rate can exceed 9 percent.
How state and local sales tax rates work
State sales tax rates range from zero to just over 7 percent. Five states — Alaska, Delaware, Montana, New Hampshire, and Oregon — do not charge state sales tax at all. Other states like California, Tennessee, and Louisiana charge rates between 7 and 7.25 percent.
On top of the state rate, most cities and counties add their own local sales tax. In some places, the combined rate reaches 10 percent or higher. For example, a city in California might have a state rate of 7.25 percent plus a local rate of 2.25 percent, for a total of 9.5 percent at checkout.
The rate you pay depends on the exact address where you make the purchase. Two stores in the same city might have different tax rates if they are in different tax districts. When you shop online, the tax is based on the address where the item is being shipped, not where the seller is located.
What items are exempt from sales tax
Most states exempt certain categories from sales tax, but the rules differ from state to state. Groceries are exempt in many states, though the definition of "groceries" varies — prepared food and restaurant meals are usually taxed even in states that don't tax raw ingredients. Prescription medications are exempt in all states, but over-the-counter medicines are taxed in some.
Clothing is exempt in a handful of states like New York and Pennsylvania, but taxed in most others. Some states exempt items for children, school supplies during certain periods, or energy-efficient appliances. A few states exempt services like haircuts or repairs, while others tax them.
If you need to know whether a specific item is taxed where you live, check your state's department of revenue website. The rules are detailed and specific, and they change occasionally.
Sales tax on online purchases
Online retailers are required to collect sales tax on orders shipped to states where they have a physical presence or meet certain sales thresholds. This rule changed significantly after a 2018 Supreme Court decision that expanded when online sellers must collect tax.
When you buy something online, the tax is calculated based on the shipping address, not the seller's location. If you live in a state with 6 percent sales tax and order from a company in a state with no sales tax, you still pay 6 percent tax on the purchase.
Some online marketplaces like Amazon and eBay collect and remit sales tax on behalf of third-party sellers in most states. Smaller sellers may not collect tax, which means you might be responsible for reporting and paying it yourself when you file your state tax return — though most people do not do this.
The difference between sales tax and other federal taxes
The federal government collects several types of tax that are not sales tax. Income tax is withheld from paychecks and paid when you file your return. Payroll tax funds Social Security and Medicare and is split between employer and employee. Excise tax is a federal tax on specific items like gasoline, alcohol, and tobacco, and it is included in the price you see at the pump or register.
These federal taxes exist alongside state and local sales tax. When you buy a gallon of gas, you pay federal excise tax, state excise tax, state sales tax, and sometimes local sales tax — all built into the final price. The sales tax portion is the only one that varies by location within a state.
Frequently Asked Questions
Can the federal government add a sales tax in the future?
Technically yes, but it would require an act of Congress. No federal sales tax has been enacted since the income tax system was created. Proposals for a federal sales tax or value-added tax (VAT) have been made by various policymakers, but none have passed.
Do I owe sales tax if I buy something from another state online?
You owe sales tax based on where the item is shipped, not where you live or where the seller is located. If you order something shipped to your home address in a state with 7 percent sales tax, you pay 7 percent, even if the seller is in a state with no sales tax.
Why do some states have no sales tax?
States without sales tax — Alaska, Delaware, Montana, New Hampshire, and Oregon — rely on other revenue sources like income tax, property tax, or in Alaska's case, oil revenue. These states made different choices about how to fund government services.
Is sales tax the same as income tax?
No. Sales tax is charged when you buy something, based on the purchase price. Income tax is charged on the money you earn. Some states have both, some have only one, and a few have neither.
Do I have to pay sales tax on used items?
Sales tax on used items depends on the state and the type of item. Most states tax used goods sold by retailers the same way they tax new goods. Private sales between individuals are usually not taxed, though some states require sales tax even on private vehicle sales.