What sales tax is and how it gets added to your bill
Sales tax is a percentage of the purchase price that you pay at the register when you buy most goods and some services. The store collects it from you and sends it to the state or local government. It is not included in the price tag — it gets added on top when you check out.
The tax rate depends on where you live and sometimes on what you are buying. A $10 item might cost $10.50 in one state and $10.75 in another. The difference comes from state tax rates, local tax rates, and occasionally special rules about which products are taxed.
Sales tax funds schools, roads, police, and other public services in your state and county. Unlike income tax, which is based on what you earn, sales tax is based on what you spend.
Key Takeaways
- Sales tax rates vary by state, ranging from zero in some states to over 7 percent in others, and local taxes can add more on top.
- The tax is collected by the store and sent to state and local governments, not kept by the business.
- Some items like groceries and prescription medications are often exempt from sales tax, but the rules differ by state.
- Online purchases are increasingly subject to sales tax, even when shipped from out of state, depending on where you live and where the seller is based.
How state and local sales tax rates combine
Every state except Alaska, Delaware, Montana, New Hampshire, and Oregon has a statewide sales tax. State rates range from 2.9 percent to 7.25 percent. On top of the state rate, most cities and counties add their own local tax, which can be anywhere from 0.5 percent to over 3 percent.
Your total sales tax is the state rate plus the local rate where you make the purchase. If you buy something in a state with a 5 percent state tax and a 2 percent local tax, you pay 7 percent total. The same item in a different county in that state might have a different local rate, so the total could be 6.5 percent or 7.5 percent.
The rate you pay depends on the address where the sale happens — usually the store's location or, for online orders, where it ships to. This is why the same item can cost different amounts depending on which store location you visit.
Which items are typically exempt from sales tax
Most states do not tax groceries, prescription medications, or medical devices. Some states also exempt clothing, diapers, or certain other necessities. The rules are different in every state, so an item that is tax-free in one state might be taxed in another.
Services are often treated differently than goods. A haircut, car repair, or plumbing service may or may not be taxed depending on your state. Some states tax services broadly; others tax only specific ones.
Digital products like e-books, streaming subscriptions, and software downloads are increasingly subject to sales tax, though the rules are still developing. Some states tax them; others do not.
How online purchases are taxed
For many years, online retailers only collected sales tax if they had a physical location in your state. That changed in 2018 when the U.S. Supreme Court ruled that states could require online sellers to collect sales tax even without a store in that state.
Today, most large online retailers collect and send sales tax based on where your order ships to. If you order something online to be delivered to your home, the seller usually charges the sales tax rate for your address. Smaller sellers may not collect sales tax, but you may owe it anyway — though most people do not report it.
If you buy from a seller outside the United States or from a very small business, sales tax rules may not explore. The specifics depend on your state's laws and the seller's location and size.
The difference between sales tax and other taxes at checkout
Sales tax is separate from other taxes you might see on a receipt. Some items have excise taxes — a federal or state tax on specific products like gasoline, alcohol, or cigarettes. These are built into the price you see, not added at checkout like sales tax.
In some places, you might also see local option taxes or special district taxes that fund specific services like public transportation or stadiums. These work like sales tax and are added at the register, but they fund a particular project or service rather than general government operations.
Why sales tax rates change and how to find your local rate
States and cities adjust their sales tax rates periodically to fund new services or balance budgets. A rate that was 6 percent five years ago might be 6.5 percent now. Some places have temporary tax increases that expire after a set time.
To find your current sales tax rate, search online for "[your city] sales tax rate" or "[your county] sales tax rate." Your state's department of revenue website lists all state and local rates. If you are shopping in a different city or county, the store can tell you the rate, or you can look it up before you go.
How sales tax affects your budget and spending
Sales tax adds up over time. On a $100 purchase, a 7 percent tax adds $7. On a $1,000 purchase, it adds $70. If you budget for groceries or other regular purchases, remember that the final cost will be higher than the price tag by whatever your local rate is.
Some people factor sales tax into their spending by rounding up mentally or keeping a percentage in mind. Others use a calculator or their phone to check the final cost before paying. Neither approach is wrong — it depends on what helps you stick to your budget.
Frequently Asked Questions
Do I have to pay sales tax on everything I buy?
No. Most states exempt groceries, prescription medications, and some medical equipment. Many states also exempt clothing or specific services. The rules vary by state, so check your state's department of revenue website to see what is exempt where you live.
Why is sales tax not included in the price tag?
Retailers display prices before tax because rates vary by location — the same item costs different amounts in different cities. Including tax in the tag would require different tags for different addresses, which is impractical. Federal law does not require tax to be included in the displayed price.
Do I owe sales tax on online purchases from out-of-state sellers?
Most large online retailers now collect and send sales tax based on your shipping address. If a seller does not collect it, you may owe it to your state, though enforcement is rare for individual purchases. Check your state's rules if you are unsure.
Can sales tax rates change during the year?
Yes. States and cities can raise or lower rates, though changes usually happen at the start of a calendar year or fiscal year. Some temporary increases expire after a set date. Check your local government's website if you notice a rate change on your receipt.
Is sales tax the same everywhere in my state?
No. The state rate is the same statewide, but local rates vary by city and county. Your total rate depends on where you make the purchase. Two cities in the same state can have different total rates because of different local taxes.