What sales tax is and when you pay it
Sales tax is a percentage of the purchase price that you pay at the register or checkout. The store collects it from you and sends it to your state or local government. The tax rate varies by location — it depends on your state, county, and sometimes your city. When you buy something, the final price you pay includes the base price plus the sales tax on top.
You pay sales tax on most goods you buy in a store or online. Some states charge it on services too, like haircuts or car repairs. A few items are exempt — meaning no tax applies — such as groceries in most states, prescription medications, and medical equipment. The exemptions differ by state, so what is tax-free in one place may not be in another.
Key Takeaways
- Sales tax is a percentage added to the price of goods and services, collected by the seller and sent to the government.
- The tax rate depends on your state, county, and sometimes city, and can range from zero to over 10 percent.
- Groceries, prescription drugs, and some medical items are exempt from sales tax in most states, but exemptions vary by location.
- Online purchases are subject to sales tax in most states now, even if the seller is out of state.
- The store shows the tax separately on your receipt so you can see how much you paid in tax versus the item price.
How the tax rate is calculated
The sales tax rate is a percentage of the item's price. If an item costs $100 and the tax rate is 8 percent, you pay $8 in tax, for a total of $108. The rate itself is set by law and does not change based on who you are or what you buy — it is the same for everyone in that location on that item type.
Your location determines which rate applies. If you live in a state with a 6 percent state tax, plus your county adds 1 percent, your total rate is 7 percent. Some cities add their own tax on top of that. A few states have no sales tax at all — currently Alaska, Delaware, Montana, New Hampshire, and Oregon do not charge state sales tax, though some of these states allow cities to charge local tax. You can find your local rate by searching online for your city and state, or by asking a cashier.
What items are taxed and what are not
Most physical goods are taxed: clothing, electronics, furniture, toys, and household items. Services vary by state. Some states tax haircuts, repairs, and professional services; others do not. The rules are set by each state legislature and change over time.
Common exemptions across most states include unprepared food (groceries), prescription medications, and medical devices like wheelchairs or hearing aids. Some states exempt clothing or shoes below a certain price. A few states do not tax services at all. Because the rules differ, the same item might be taxed in one state and exempt in another. If you are unsure whether something is taxed where you live, the store receipt will show it, or you can contact your state's tax authority.
How online purchases are taxed
Online retailers now charge sales tax on most purchases, even if the seller is located in a different state. This changed in 2018 when the U.S. Supreme Court ruled that states could require online sellers to collect tax. Large retailers like Amazon, Walmart, and Target collect tax based on your shipping address. Smaller sellers may or may not collect tax depending on their state's rules and their own location.
When you buy online, the tax is usually added at checkout before you complete the purchase. The rate applied is based on the address where the item will be shipped, not where the seller is. If you are buying from a small seller or marketplace and no tax appears at checkout, you may owe tax when you file your state tax return, though this is rare for individual purchases. The receipt you receive by email will show the tax amount just like a store receipt does.
Why sales tax exists and where the money goes
Sales tax is a source of revenue for state and local governments. The money collected goes to fund schools, roads, police and fire departments, libraries, and other public services. Each state decides how to split the tax revenue between the state government and local governments (cities and counties). Some states keep most of it; others give a larger share to cities and counties.
The tax is collected by the seller, who then sends it to the government on a schedule set by state law — usually monthly or quarterly. Businesses must keep records of the tax they collect and file returns showing how much they collected and sent in. This is why stores and online retailers need your address: to know which tax rate to charge and to report to the correct government.
How to find your local sales tax rate
Your state's Department of Revenue or Tax Department website lists the current sales tax rate for your area. You can search by city or zip code. The rate shown will include state tax plus any county or city tax that applies to your location. Some websites and tax calculators also show the rate if you enter your address.
If you are shopping in a different city or state, you can look up that location's rate the same way before you go, so you know what the final price will be. Rates change occasionally when laws are updated, so if you are planning a large purchase, it is worth checking the current rate rather than relying on a rate you saw months ago.
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 items below a certain price. The exemptions vary by state, so check your state's rules for what is not taxed where you live.
Why is the price on the shelf different from what I pay at the register?
The shelf price is the base price before tax. Sales tax is added at checkout, so the final amount you pay is higher. This is why stores show the tax separately on your receipt — so you can see the item price and the tax amount.
Do I pay sales tax if I buy something online from another state?
Yes, in most cases. Online sellers now charge sales tax based on where you live (your shipping address), not where they are located. The tax rate applied is the one for your state, county, and city.
Can I get sales tax back if I return an item?
Yes. When you return an item and get a refund, the store refunds both the item price and the tax you paid. Your refund receipt will show the tax amount refunded just as your original receipt showed the tax charged.
What if a store charges me the wrong tax rate?
Ask the store to correct it. If you notice an error on your receipt before you leave, tell a cashier and they can adjust it. If you notice it later, contact the store's customer service with your receipt. Stores are required by law to charge the correct rate for your location.