Sales tax is the percentage your state or local government adds to the price of goods at the point of sale
When you buy something at a store or online, the final price you pay includes the original price plus a tax amount. That tax is calculated by taking the item's price and multiplying it by the tax rate for your location. The result is added to what you owe. The rate varies by state — some states have no sales tax at all, while others charge between 4 and 10 percent depending on where you live and what you buy.
The math is straightforward: if an item costs $100 and your sales tax rate is 7 percent, you multiply $100 by 0.07 to get $7 in tax. You pay $107 total. Most stores calculate this automatically at checkout, so you see the final amount on your receipt.
Key Takeaways
- Sales tax is calculated by multiplying the item price by the tax rate percentage for your location.
- Tax rates vary by state and sometimes by county or city, ranging from 0 percent in some states to over 10 percent in others.
- Not all items are taxed the same way — groceries, prescription medications, and clothing may be taxed differently depending on your state.
- Online purchases are now subject to sales tax in most states, calculated based on where the item is shipped, not where you live.
How the tax rate is determined by location
Your sales tax rate depends on where the purchase happens. If you buy something in a store, the rate is based on that store's location. If you order online, the rate is based on the shipping address. Each state sets its own base rate, and then cities and counties can add their own local tax on top of that.
For example, Colorado has a state rate of 4.63 percent, but Denver adds a local rate of 3.62 percent, making the total 8.25 percent in that city. The same item bought in a different Colorado county would have a different total rate. This is why the same product can cost different amounts depending on where you buy it.
Some states have no sales tax at all — Alaska, Delaware, Montana, New Hampshire, and Oregon do not charge state sales tax. However, some of these states allow cities or counties to add local sales tax, so you may still pay tax depending on exactly where you are.
What items are and are not taxed
Not everything you buy is taxed at the same rate, and some items are not taxed at all. Most states do not tax groceries, prescription medications, or medical equipment. Clothing is taxed in most states but not all — some states exempt clothing entirely, while others only exempt items below a certain price.
Services are usually not taxed, though this varies by state. A haircut, car repair, or plumbing service typically has no sales tax added. Digital products like e-books, streaming subscriptions, and software downloads are taxed in some states but not others. Restaurant meals are almost always taxed, even though the food itself might not be if you bought it at a grocery store.
The best way to know whether something will be taxed is to check your state's tax department website or ask the seller before you buy. Tax rules change, and some states have different rules for different types of businesses.
The difference between tax-inclusive and tax-exclusive pricing
In most of the United States, the price you see on a shelf or online does not include sales tax. The tax is added at checkout. This is called tax-exclusive pricing. You see $19.99, but you pay more at the register because tax gets added on top.
A few places use tax-inclusive pricing, where the displayed price already includes the tax. This is common in other countries but rare in the U.S. When you see a price in most American stores, assume the final amount you pay will be higher by the amount of your local sales tax.
How online retailers calculate tax
Online sales tax rules changed significantly in 2018 when the Supreme Court ruled that states could require online retailers to collect sales tax. Before that, many online purchases had no tax added. Now, most major online retailers calculate and charge sales tax based on your shipping address.
When you enter your address during checkout, the retailer's system looks up the sales tax rate for that location and adds it to your total. Small retailers with very low sales volume may not be required to collect sales tax in all states, but large companies like Amazon, Walmart, and Target collect it everywhere they ship.
Some items purchased online are still not taxed in certain states — again, this depends on what you are buying and where it is being shipped. The retailer's system should show you the tax amount before you complete your purchase.
How to read a sales tax receipt
Your receipt shows the subtotal (the price before tax), the tax amount, and the total (subtotal plus tax). The tax line usually shows both the dollar amount and sometimes the rate. If you see "Tax: $7.00 (7%)" that means the tax was calculated at 7 percent of the subtotal.
If you are buying multiple items at different tax rates — for example, groceries (often not taxed) and a magazine (usually taxed) — the receipt may show separate tax calculations for each category. Some receipts group all taxable items together and all non-taxable items together, then calculate tax only on the taxable group.
You can verify the math yourself: take the subtotal, multiply by the tax rate shown, and see if it matches the tax amount on the receipt. Mistakes are rare, but checking is a good habit if you are buying high-value items.
Frequently Asked Questions
Why is the total price different from what the sign said?
The price on the shelf or online does not include sales tax in most U.S. locations. The tax is added at checkout based on your location's rate. This is why the amount you pay is higher than the displayed price. Some states and countries include tax in the displayed price, but most U.S. retailers do not.
Do I pay sales tax on used items?
It depends on where you buy them. Used items sold by a business (like a used car dealer or consignment shop) are usually taxed. Items sold between individuals, like a private car sale or items sold on Facebook Marketplace, typically are not taxed. Check your state's rules if you are unsure.
Can I get sales tax back if I return something?
Yes. When you return an item, the store refunds both the item price and the tax you paid. The refund should show on your receipt or credit card statement as the full amount you originally paid, including tax.
How do I know what my local sales tax rate is?
Visit your state's Department of Revenue or Tax Commission website — every state has one. You can search by city or zip code to find your exact rate. Rates change occasionally, so checking the official source is more reliable than guessing based on past purchases.
Is sales tax the same as income tax?
No. Sales tax is charged when you buy something. Income tax is charged on the money you earn. They are separate taxes collected by different government agencies for different purposes. Some states have both, some have only one, and a few have neither.