Sales tax is a percentage added to the price of goods or services at the point of sale

The amount you owe depends on two things: the price of what you are buying, and the tax rate where you are buying it. Sales tax rates vary by state, county, and sometimes by city. A $100 item in one location might cost $107 in sales tax in another state, or even in a different county in the same state.

The basic calculation is straightforward: multiply the price by the tax rate as a decimal, then add that to the original price. If you buy something for $50 in a place with 7% sales tax, you multiply $50 by 0.07 to get $3.50 in tax, making your total $53.50. Most cash registers do this automatically, but knowing how it works helps you budget and spot errors on receipts.

Key Takeaways

  • Sales tax rate is a percentage that varies by state, county, and sometimes city — there is no single national rate.
  • To calculate tax, multiply the item price by the tax rate as a decimal (7% becomes 0.07), then add the result to the original price.
  • Some states have no sales tax at all, while others charge rates ranging from about 4% to over 10%.
  • Certain items like groceries, prescription medications, and medical equipment are often exempt from sales tax in many states.
  • Online purchases are increasingly subject to sales tax in the state where you live, even if the seller is out of state.

Finding the sales tax rate for your location

Your state's Department of Revenue or Department of Taxation publishes the official rate for your area. You can search online for "[your state] sales tax rate" to find the state website. The state rate is the baseline, but your actual rate may be higher because counties and cities often add their own tax on top.

If you live in a city or county, the combined rate is what matters. For example, Colorado's state rate is 2.9%, but Denver adds 3.62%, making the total 6.52%. A store's receipt will show the combined rate that applied to your purchase. If you want to know the rate before you shop, search for your city or county name plus "sales tax rate" — most local tax authorities post this information online.

Step-by-step calculation with examples

Start with the item price before tax. Locate the tax rate for your location as a decimal. Multiply the price by that decimal. Add the result to the original price.

Example 1: You buy a shirt for $40 in a place with 8% sales tax. Multiply $40 by 0.08 to get $3.20. Your total is $40 + $3.20 = $43.20.

Example 2: You buy groceries totaling $75 in a place with 6% sales tax, but groceries are exempt. You pay $75 with no tax added.

Example 3: You buy multiple items — a $20 book, a $15 notebook, and a $10 pen — in a place with 7% sales tax. Add the items first: $20 + $15 + $10 = $45. Then multiply $45 by 0.07 to get $3.15 in tax. Your total is $45 + $3.15 = $48.15.

Items that are usually exempt from sales tax

Most states do not charge sales tax on groceries, though the definition of "groceries" varies. Fresh produce, meat, dairy, and bread are typically exempt. Prepared foods, candy, and soft drinks are usually taxed. Some states exempt all food; others tax everything except raw ingredients.

Prescription medications are exempt in all 50 states. Medical equipment like wheelchairs, hearing aids, and diabetic supplies are often exempt, though the rules differ by state. Clothing is exempt in a few states but taxed in most. Children's clothing is exempt in some states but not others. If you are unsure whether a specific item is taxed, ask the cashier or check your state's Department of Revenue website.

How online purchases are taxed

For many years, online retailers did not charge sales tax unless they had a 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. Most large online retailers now charge sales tax based on the address where the item is being shipped.

If you buy something online and it ships to your state, you will usually see sales tax added at checkout. The rate applied is the combined state and local rate for your shipping address. If the seller does not charge sales tax, you may owe "use tax" to your state — a tax on items you bought out of state. Most people do not report use tax, but technically it is owed. Check your state's Department of Revenue website if you want to know the rules for your location.

What to do if the tax on your receipt looks wrong

First, check that the tax rate shown on the receipt matches the rate for your location. If you bought the item in a different city or county than where you live, the rate at the point of sale is what applies, not your home rate. Verify the rate on your state's Department of Revenue website or by calling the store.

Next, check that the math is correct. Multiply the subtotal (before tax) by the tax rate shown. If the receipt shows a different amount, ask the cashier or store manager to recalculate. Errors happen, especially with multiple items or discounts. If the store made a mistake, they should correct it on the spot or issue a refund for the overcharge.

States with no sales tax

Five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. If you live in one of these states, you will not pay sales tax on most purchases. However, some of these states have other taxes. Alaska allows cities to charge local sales tax, so some areas do have it. New Hampshire taxes meals and lodging but not retail goods.

If you are buying something online and shipping it to one of these states, the seller should not charge sales tax. If they do, contact them to request a refund. Some online retailers make mistakes with tax calculation, especially for states with unusual rules.

Frequently Asked Questions

Is sales tax included in the price shown on the shelf?

No. The shelf price is before tax. Sales tax is added at checkout. This is why the total you pay is higher than the price tag. Some countries include tax in the displayed price, but the United States does not.

Do I have to pay sales tax on used items?

It depends on where you buy them. Used items sold by a business (like a used car lot or thrift store) are usually taxed. Items sold between individuals (like a private car sale or garage sale) are typically not taxed. Check your state's rules if you are unsure.

What is the difference between sales tax and use tax?

Sales tax is charged when you buy something. Use tax is charged on items you bought out of state and brought into your state without paying sales tax. Most people do not report use tax, but it is technically owed in most states.

Can I get a refund of sales tax I already paid?

Generally no, unless the store made an error or you return the item. If you return something, the refund is usually for the full amount including tax. Some states offer sales tax refunds for specific groups like non-residents or non-profit organizations, but these are rare and require paperwork.

How do discounts affect sales tax?

Sales tax is calculated on the price after the discount is applied, not the original price. If an item is $100 with a 20% discount, you pay $80 before tax. Sales tax is then calculated on the $80, not the $100.