Sales Tax Explained

Sales tax is the most visible tax most Americans pay — added at the register, on a receipt, or now on nearly every online order. Yet it varies wildly depending on where you are: the same product can cost noticeably more or less simply by being purchased a few miles apart. This guide explains how sales tax works, the difference between state and local rates, which states charge no sales tax at all, how online sales tax changed after the Supreme Court’s Wayfair decision, and the simple formula behind every sales tax calculation. For exact figures, a sales tax calculator handles any price and rate instantly.

What is sales tax?

Sales tax is a consumption tax collected by a retailer at the point of sale and passed on to the state (and sometimes local) government. It is a percentage of the purchase price applied to most tangible goods and, depending on the state, certain services. Unlike an income tax, sales tax is paid only when you buy something — which is why it is called a consumption tax.

In the United States, there is no national sales tax. Instead, each of the 50 states (and thousands of local jurisdictions) sets its own rules, rates, and exemptions. This is why a $20 item costs $21.75 in one town and $22.25 in another — combined state and local rates stack, and the local add-on differs from place to place.

State and local sales tax rates

The total sales tax you pay is usually a combination of a statewide rate and a local rate. Some states set only a single statewide rate, but most allow counties, cities, and special districts to add their own portion. Here is how the layers stack:

• State rate: the base sales tax set by the state legislature.
• Local rate: an additional percentage added by counties, cities, transit authorities, or special districts.
• Combined rate: the sum of state and local rates — this is the actual percentage charged at the register.

For example, California’s statewide base rate is 7.25%, but many cities add 1–3% on top, pushing combined rates above 10% in some areas. In contrast, Colorado’s state rate is just 2.9%, but local additions can more than double that. The state with the highest combined rates in the country is typically Tennessee or Louisiana when you factor in local add-ons.

The five states with no sales tax

Five states do not charge a statewide sales tax:

State	Statewide sales tax	Local sales tax?
Oregon	None	No
New Hampshire	None	No
Montana	None	Limited local resort taxes only
Delaware	None	No
Alaska	None	Yes — local municipalities may set their own

Oregon, New Hampshire, Montana, and Delaware effectively have no general sales tax at either the state or local level for most purchases. Alaska is the exception: while the state itself charges no sales tax, local municipalities like Juneau and Anchorage may levy their own sales taxes, typically in the 2–5% range. Travelers often shop in these states precisely to take advantage of the savings, which is why border towns in tax-free New Hampshire are popular with shoppers from high-tax Massachusetts.

Keep in mind that "no sales tax" does not mean "no taxes." These states often raise revenue through higher income taxes, property taxes, or business taxes instead. New Hampshire, for example, has no sales tax and no state income tax on wages — but it taxes interest and dividends. The absence of a sales tax shifts the tax burden, not the total revenue a state collects.

How to calculate sales tax

The formula for sales tax is straightforward:

Sales tax = Price × (combined tax rate ÷ 100)

Multiply the price by the combined state and local rate as a decimal. Add the result to the price to get the total paid.

• On a $100 item at a 7% combined rate: $100 × 0.07 = $7 tax, total $107.
• On a $250 item at a 8.5% combined rate: $250 × 0.085 = $21.25 tax, total $271.25.
• On a $40 item at a 6.25% rate: $40 × 0.0625 = $2.50 tax, total $42.50.

Because combined rates shift from one town or county to the next, an online sales tax calculator makes it easy to test rates for the exact place your purchase will be delivered — which is increasingly how jurisdictions collect online sales tax.

Examples of combined rates by city

City	State rate	Local rate	Combined
Los Angeles, CA	7.25%	2.50%	9.75%
Chicago, IL	6.25%	4.25%	10.50%
Seattle, WA	6.50%	3.70%	10.20%
Nashville, TN	7.00%	2.25%	9.25%
Denver, CO	2.90%	5.15%	8.05%
Portland, OR	0%	0%	0%

Rates change frequently as voters and local councils approve new levies — always verify the current rate for your exact jurisdiction. Retailers like Amazon automatically calculate these combined rates at checkout based on the shipping address, which is a useful comparison point for shoppers and small sellers alike.

Origin sourcing vs. destination sourcing

For businesses, one of the trickiest parts of sales tax is deciding which rate to charge. The answer depends on the state’s sourcing rule:

• Origin sourcing: the sale is taxed at the rate where the seller is located. A few states use this for in-state retail transactions (California is a hybrid example).
• Destination sourcing: the sale is taxed at the rate where the buyer takes delivery. Most states now use destination sourcing for retail and most online sales.

For a customer buying online, destination sourcing means the sales tax you pay is based on your shipping address — which is why the same item can show different totals depending on where it is delivered.

Online sales tax after Wayfair

Until 2018, a retailer only had to collect sales tax in states where it had a physical presence — a store, warehouse, or office. That rule came from a 1992 Supreme Court case, Quill Corp. v. North Dakota, and it created a massive loophole: online sellers with no physical presence could ship into high-tax states without collecting sales tax, leaving the customer technically responsible for paying "use tax" — which almost no one did.

In South Dakota v. Wayfair, Inc. (2018), the Supreme Court overturned Quill. States can now require sellers to collect sales tax based on "economic nexus" — a threshold of sales activity in the state, even without a physical presence. Most states use a threshold of $100,000 in annual sales or 200 separate transactions into the state. The practical result: large online retailers like Amazon now collect sales tax in essentially every state that has one.

Technically, when a seller does not collect sales tax, the buyer still owes "use tax" to the state — but enforcing it on individuals is rare. The Wayfair ruling closed most of the gap by putting collection responsibility on the seller.

Sales tax vs. VAT vs. GST

Sales tax is the US system. Most other countries use a Value-Added Tax (VAT) or Goods and Services Tax (GST) instead. The differences matter when comparing prices or shopping internationally:

Feature	US Sales Tax	VAT / GST
Where collected	Final sale to consumer	Every stage of production
Displayed in price?	Added at register	Often included in shelf price
Used by	United States	EU, UK, Canada, Australia, most countries
Typical rate	0–10% (state + local)	5–25% national rate

Because VAT is built into the supply chain, the sticker price in VAT countries usually already includes tax — which catches many American travelers by surprise when they see higher shelf prices but no surprise add-on at checkout.

Common sales tax exemptions

Not every purchase is taxed. Most states exempt or reduce tax on categories considered essential:

• Groceries: many states exempt unprepared food, though some (like Mississippi and Alabama) fully tax it.
• Prescription drugs: exempt in nearly all states.
• Clothing: exempt up to a dollar threshold in states like Pennsylvania, New York, and New Jersey.
• Manufacturing inputs: raw materials bought for resale or further manufacturing are generally exempt under a resale certificate.

Exemptions vary enough that a sales tax calculator that knows your jurisdiction is the safest way to estimate the total before you buy.

Sales tax holidays

Many states run annual "sales tax holidays" — weekends or weeks during which certain items (back-to-school clothing, school supplies, hurricane preparedness supplies, Energy Star appliances) are exempt from sales tax. These usually occur in late summer, and they can be a meaningful savings window for families buying clothes and supplies in bulk. Dates and eligible items vary by state.

The bottom line

Sales tax is a percentage added to the purchase price, combining a state rate with local rates that shift from town to town. Five states — Oregon, New Hampshire, Montana, Delaware, and Alaska — charge no statewide sales tax, though Alaska allows local levies. The Wayfair decision in 2018 closed the online loophole, so today almost all online purchases are taxed based on your shipping address. To estimate the total cost of any purchase, multiply the price by the combined rate, or use a sales tax calculator to handle the math for your exact location.