Sales tax is a percentage added to the price of goods and services at the point of purchase
When you buy something in a store or online, the cashier or checkout screen adds a tax to your total. That tax goes to your state or local government, not to the business selling the item. The percentage varies by location — it depends on which state you live in, which county, and sometimes which city. A $10 item might cost $10.70 in one place and $10.50 in another, purely because of where you are.
Sales tax is collected by the seller and then sent to the government on a regular schedule, usually monthly or quarterly. The seller acts as a collector; they do not keep the money. You pay it at the moment of sale, which is why you see it added at checkout rather than receiving a bill later.
Key Takeaways
- Sales tax is a percentage of the purchase price added at checkout, and the rate depends on your state, county, and sometimes city.
- Not all items are taxed the same way — groceries, prescription medications, and some clothing are often exempt or taxed at lower rates depending on where you live.
- The seller collects the tax from you and sends it to the government; you do not file anything yourself as a buyer.
- Sales tax rates range from zero percent in some states to over 10 percent in others, and the rate can change based on local tax increases.
How the tax rate is set and who collects it
Your state government sets a base sales tax rate, and then counties and cities can add their own local tax on top of that. This is why the same product costs different amounts in different parts of the same state. For example, one county might have a 6 percent state rate plus a 1 percent county rate, for a total of 7 percent, while a neighboring county might have 6 percent state plus 2 percent county, for 8 percent total.
The business where you make the purchase — the grocery store, gas station, restaurant, or online retailer — is responsible for collecting the tax from you and keeping track of how much they collected. They then file a return with the state (and sometimes the county) showing how much tax they collected and send the money in. The business does not own this money; it is held in trust for the government.
Rates change periodically when voters approve tax increases or when legislatures pass new laws. If you move to a different state or county, the tax rate you pay will change immediately, even if you are buying the exact same item from the exact same type of store.
What is and is not taxed
Most states exempt certain items from sales tax or tax them at a lower rate. The most common exemptions are groceries (unprepared food you cook at home), prescription medications, and medical devices. However, these rules vary significantly by state. Some states tax groceries at the full rate, while others do not tax them at all. Prepared food — restaurant meals, deli items, hot food from a grocery store — is almost always taxed.
Clothing is taxed in most states, but some states exempt clothing entirely or exempt items below a certain price (for example, items under $110). Services are often not taxed, though this varies. A haircut might not be taxed in your state, but a massage might be. Digital goods like e-books, streaming subscriptions, and software downloads are increasingly taxed, though the rules are still evolving and differ by state.
If you buy something online from a seller in another state, you may or may not see sales tax charged at checkout. The rules about when online sellers must collect tax changed in 2018, and now most large retailers collect tax based on where you live. Smaller sellers may not, though you may technically owe "use tax" to your state on those purchases — a tax you would report yourself, which most people do not.
The difference between sales tax and other taxes
Sales tax is separate from income tax. Income tax is based on how much money you earn; sales tax is based on what you spend. You pay income tax once a year (or have it withheld from paychecks), while you pay sales tax every time you make a purchase. Some states have both, some have only sales tax, and a few have neither.
Sales tax is also different from excise tax, which is a tax on specific items like gasoline, cigarettes, or alcohol. Excise taxes are usually much higher than sales tax and are meant to discourage consumption of those items or to fund related programs (like road maintenance for gas tax). You see excise tax included in the price at the pump or on the shelf, not always as a separate line item.
Property tax, another common tax, is based on the value of real estate you own and is paid annually to your local government. It is not related to sales tax, though both go to fund local services.
How sales tax affects your budget
Sales tax adds to the real cost of everything you buy. If you are budgeting for a purchase, you need to account for the tax. A $100 item in a place with 8 percent sales tax actually costs $108. Over time, this adds up — if you spend $500 a month on taxable items in a place with 7 percent tax, you are paying $35 a month in sales tax alone, or $420 a year.
The impact is not equal across income levels. A person earning $30,000 a year spends a much higher percentage of their income on taxable goods than a person earning $100,000, because lower-income households spend more of their money on immediate needs. This is why some states exempt groceries and medications — to reduce the burden on people with lower incomes.
If you move between states or counties, your effective cost of living changes immediately. Moving from a state with no sales tax to a state with 9 percent sales tax means everything you buy costs more, even if your salary stays the same.
Sales tax on specific situations
If you run a small business and buy items to resell, you may not pay sales tax on those purchases if you have a resale certificate. You collect tax from your customers instead. This prevents the same item from being taxed twice — once when you buy it and again when your customer buys it from you.
If you are a nonprofit organization, you may be exempt from sales tax on certain purchases. You would need to register with your state and provide proof of nonprofit status at the time of purchase or file for a refund afterward.
If you buy something out of state and bring it home, you may owe use tax to your home state, even though you did not pay sales tax when you bought it. This is rare to enforce for individual purchases, but it is technically owed. Some states are more aggressive about collecting use tax on online purchases than others.
Frequently Asked Questions
Why do some items not have sales tax?
States exempt items they consider necessities or want to encourage consumption of. Groceries and prescription medications are the most common exemptions because they are essential and lower-income households spend a large share of their money on them. Some states also exempt clothing, medical equipment, or services. The specific exemptions depend entirely on state law.
Is sales tax the same everywhere in my state?
No. Your state sets a base rate, but counties and cities add their own taxes on top. You might pay 6 percent in one city and 8.5 percent in another city 20 miles away. Check your local rate by searching "[your city] sales tax rate" or asking a cashier.
Do I have to pay sales tax when I buy something online?
Most large online retailers now collect and send sales tax based on where you live. Smaller sellers may not. If you buy from a seller who does not collect tax, you technically owe use tax to your state, though enforcement is rare for individual purchases.
Can I get sales tax refunded?
Not as a regular buyer. You pay sales tax at checkout and it goes to the government. If you overpaid due to an error, you would need to contact the business or your state tax office. Nonprofits and resellers can sometimes get refunds by providing proof of exemption, but this requires paperwork filed with the state.
Does sales tax apply to services?
It depends on the service and your state. Haircuts, repairs, and consulting are often not taxed. Restaurants, hotels, and entertainment are usually taxed. There is no single rule — check your state's tax rules for the specific service you are asking about.