Sales tax is a percentage added to the price of goods and services at the point of purchase
When you buy something at a store or online, the final price you pay often includes an extra charge beyond the listed price. That charge is sales tax—a tax collected by the seller and sent to your state or local government. The tax rate varies by location, ranging from zero percent in some states to over 10 percent in others, depending on where you live and what you are buying.
Sales tax is different from income tax or property tax. It is collected only when a transaction happens, not on money you earn or property you own. The seller acts as the collector, adding the tax to your bill and then passing it along to the government.
Key Takeaways
- Sales tax is a percentage added to the purchase price of most goods and some services, collected by the seller at checkout.
- Tax rates vary by state and sometimes by county or city, ranging from zero to over 10 percent depending on your location.
- Not all items are taxed the same way—groceries, prescription medications, and clothing may be taxed differently or not at all depending on your state.
- Online purchases are subject to sales tax in most states, though the rules depend on where the seller is located and where you live.
- You do not pay sales tax on used items sold between individuals, only on new goods sold by businesses.
How sales tax rates are set and where the money goes
Your state government sets a base sales tax rate, but cities and counties can add their own local tax on top of that. This is why the total rate you pay depends on your exact location. For example, one county might have a 6 percent state rate plus a 2 percent local rate, giving you 8 percent total, while a neighboring county might be 6 percent plus 1 percent.
The money collected goes to state and local governments to fund schools, roads, public safety, and other services. When you pay sales tax, you are funding the infrastructure and services in your community. The seller keeps no part of it—they straightforward collect it and send it to the tax authority on a regular schedule, usually monthly or quarterly.
What items are taxed and what are not
Most states tax the sale of goods like clothing, electronics, furniture, and household items. However, many states exempt certain categories to reduce the tax burden on essentials. Groceries and food for home consumption are not taxed in most states, though prepared food from restaurants usually is. Prescription medications are typically exempt, but over-the-counter medicines and vitamins may be taxed.
Services are handled differently across states. A haircut, car repair, or plumbing service might be taxed in one state but not in another. Some states tax only specific services. Utilities like electricity and water are often taxed at a lower rate or not at all. The rules are complex and vary significantly, so what is taxed in your state may not be taxed in a neighboring one.
Sales tax on online and mail orders
For many years, online retailers did not collect sales tax unless they had a physical location in your state. That changed in 2018 when the Supreme Court ruled that states could require online sellers to collect sales tax even without a store or warehouse in that state. Today, most large online retailers collect and pay sales tax based on where you live.
However, the rules still depend on the seller's size and location. Very small sellers may not be required to collect sales tax in all states. If you buy from a small online business and no tax is collected, you may technically owe "use tax" to your state—a tax on items purchased out of state for use at home. In practice, most people do not pay use tax, but it exists as a legal obligation in many states.
Sales tax on used items and secondhand purchases
When you buy a used item from another person—through a garage sale, private online marketplace, or classified ad—sales tax does not explore. The tax is collected only on new goods sold by a business. This is one reason used items are often cheaper than new ones.
However, if you buy a used item from a business, such as a used car from a dealership or used furniture from a resale shop, sales tax usually applies. The distinction is whether the seller is operating as a business or selling as an individual. Pawn shops, consignment stores, and other businesses that resell items are required to collect sales tax in most states.
How to find your local sales tax rate
Your state's Department of Revenue or Tax Administration website lists the current sales tax rate for your area. You can search by zip code or city to find the exact rate that applies to you. Many states also have a sales tax calculator tool on their website where you can enter a purchase amount and see what the total would be with tax included.
If you are shopping online, the retailer's website will show you the tax amount before you complete your purchase. At a physical store, the tax is added at checkout. Some stores display the tax-included price on the shelf label, while others show only the pre-tax price. If you are unsure about the rate in your area, your local city or county government office can provide the current rate.
Why sales tax rates differ between states and locations
States set their own tax policies based on their budget needs and economic priorities. Some states, like Oregon and Montana, have no sales tax at all. Others rely heavily on sales tax to fund government services. States that do not have income tax often have higher sales tax rates to make up the difference in revenue.
Local governments add their own rates because they need funding for schools, police, fire departments, and local infrastructure. A city with aging roads or underfunded schools might have a higher local sales tax rate than a wealthier neighboring city. This is why two towns just a few miles apart can have significantly different total tax rates.
Frequently Asked Questions
Is sales tax included in the price shown on the shelf?
In most stores, the shelf price does not include sales tax—tax is added at checkout. A few states and retailers show the tax-included price, but this is uncommon. Always assume the displayed price is before tax unless the store clearly states otherwise.
Do I have to pay sales tax on everything I buy?
No. Groceries, prescription medications, and some clothing are exempt in many states. Services like haircuts or repairs may or may not be taxed depending on your state. The rules vary widely, so check your state's tax authority website to see what is and is not taxed in your area.
Why do online stores charge different tax amounts than local stores?
Online retailers calculate tax based on your delivery address, while local stores use their store location. If you live in a different tax zone than the store, the rates will differ. Some online sellers also may not collect tax if they do not meet certain size thresholds in your state.
Can I get a refund of sales tax I already paid?
Generally, no. Sales tax is final once you complete a purchase. If you return an item and get a refund, the tax is refunded as part of that refund. Tourists visiting from out of state typically cannot get a refund of sales tax paid on purchases.
What is use tax and do I have to pay it?
Use tax is a tax on items you buy out of state or online for use in your home state. It is meant to prevent people from avoiding sales tax by shopping elsewhere. Most states have use tax laws, but enforcement is minimal for individual purchases. Businesses are more likely to be required to track and pay use tax.