A 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 is a sales tax. It is a consumption tax — you pay it when you consume or buy something, not when you earn money or own property. The tax goes to your state or local government, not to the federal government.
Sales tax is different from income tax (which you pay on wages) and property tax (which you pay on land or a home you own). It is collected at the moment of the transaction, usually by the business selling the item, and that business sends the money to the state or county.
Key Takeaways
- Sales tax is added at checkout and varies by state, ranging from zero percent in some states to over 10 percent when state and local taxes combine.
- Not all items are taxed the same way — groceries, medicine, and clothing are often taxed at lower rates or not at all, depending on your state.
- The business collecting the tax is responsible for sending it to the government, not you.
- Online purchases are now subject to sales tax in most states, even if the seller is out of state.
How sales tax rates are set and who collects it
Each state sets its own sales tax rate. Some states have no sales tax at all (Alaska, Delaware, Montana, New Hampshire, and Oregon). Other states set a base rate and then allow cities and counties to add their own local tax on top. This is why the total tax you pay depends on where you are shopping.
The business selling the item — the retailer — collects the tax from you at the register or checkout. That business then holds the money and sends it to the state revenue department or local tax authority on a regular schedule, usually monthly or quarterly. You do not send the tax directly to the government yourself.
What items are and are not taxed
Most states exempt certain items from sales tax or tax them at a lower rate. Groceries and food for home consumption are often untaxed or taxed at a reduced rate in many states. Prescription medications are frequently exempt. Clothing may be untaxed or taxed differently depending on the state.
Services are treated differently than goods in most states. A haircut, a plumber's labor, or a doctor's visit may or may not be taxed depending on your state's rules. Some states tax services; others do not. Digital products like e-books, software, and streaming subscriptions have varying tax treatment by state.
Sales tax versus income tax and property tax
Sales tax, income tax, and property tax are three separate taxes that fund different levels of government. Income tax is taken from your paycheck and goes to the federal government and sometimes to your state. Property tax is paid once or twice a year on real estate and goes to your local government, usually to fund schools and services.
Sales tax is collected every time you make a purchase and goes to your state and local governments. It is the only one of the three that you can avoid by not buying something. You cannot avoid income tax if you work, and you cannot avoid property tax if you own land — but you can choose not to purchase a taxable item.
How sales tax affects your budget
Sales tax increases the final price of what you buy. If an item is marked $100 and your sales tax rate is 8 percent, you will pay $108 at checkout. This means your actual cost is higher than the price tag shows. Over time, sales tax adds up, especially on large purchases like furniture, cars, or appliances.
Some people budget by calculating the tax into their spending plan. If you know your local rate, you can multiply the price by that rate to find out what you will actually pay. For example, at a 7 percent rate, a $50 item costs $53.50. Keeping this in mind helps you plan purchases and understand why your receipt total is higher than the price tag.
Sales tax on online and out-of-state purchases
For many years, online retailers did not collect sales tax if they had no 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. Today, most large online retailers collect and send sales tax based on your delivery address, even if the company is located out of state.
Small sellers and marketplaces have different rules depending on your state. Some states set a sales threshold — for example, sellers who make over $100,000 in sales per year must collect tax. Others require all sellers to collect it. When you buy online, the tax is usually added before you complete checkout, just as it would be in a physical store.
Frequently Asked Questions
Do I have to pay sales tax on everything I buy?
No. Most states exempt groceries, prescription drugs, and sometimes clothing. Some states do not tax services. The items and services that are taxed vary by state, so what is taxed where you live may differ from another state.
Why is sales tax different in different places?
Each state sets its own base sales tax rate, and cities and counties can add local taxes on top. This is why the same item might cost different amounts in different towns. Your state and local government use the revenue for schools, roads, and public services.
Can I get sales tax back if I return something?
Yes. When you return an item, the store refunds both the price and the tax you paid. You will see the tax refunded on your receipt or back to your payment method, just as the original price is refunded.
Do I owe sales tax if I buy something out of state and bring it home?
In most states, you technically owe a "use tax" on items you buy out of state and use at home, but it is rarely enforced for individual purchases. This rule mainly applies to businesses. For personal purchases, sales tax at the point of sale is the standard.