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 shows you a subtotal, then adds sales tax on top. That tax goes to your state or local government. The percentage varies by location — it depends on which state you live in, which county, and sometimes which city. A $100 item might cost $107 in one place and $110 in another, depending entirely on where you buy it.
Sales tax is different from income tax or property tax. You pay it only when you make a purchase, not based on what you earn or own. Most states use sales tax as a major source of revenue. Some states have no sales tax at all, while others combine state and local rates that can reach 10 percent or higher.
Key Takeaways
- Sales tax is added at checkout and varies by state, county, and sometimes city — there is no single national rate.
- Most goods are taxed, but groceries, prescription medications, and some services are often exempt depending on your state.
- You pay sales tax when you buy in person or online, though online tax collection rules have changed in recent years.
- The tax is collected by the seller and sent to the state or local tax authority, not paid directly by you to the government.
Which states have sales tax and which do not
Five states have no sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Every other state collects sales tax, though the rate and what is taxed differs significantly. Some states tax groceries at the full rate, while others tax them at a lower rate or not at all. Some states tax services like haircuts or repairs, while others do not.
Within states that have sales tax, local jurisdictions often add their own tax on top of the state rate. So your total sales tax rate is the state rate plus any county or city rate that applies where you make the purchase. A state might have a 5 percent rate, but your county adds 2 percent, making your total 7 percent. This is why the same item costs different amounts in different parts of the same state.
What items are taxed and what are exempt
Most physical goods are subject to sales tax — clothing, electronics, furniture, toys, and so on. But many states exempt certain items, especially necessities. Groceries and food for home consumption are exempt in most states, though prepared food and restaurant meals are usually taxed. Prescription medications are exempt in all states, but over-the-counter drugs and vitamins are often taxed.
Services are treated differently depending on the state. A haircut might be taxed in one state and not in another. Car repairs, plumbing, and consulting services may or may not be taxed. Some states tax digital goods like e-books and software, while others do not. The rules are complex and vary widely, so if you are unsure whether something is taxed in your state, you can check your state's tax authority website or ask the seller at checkout.
How online purchases are taxed
For many years, online retailers did not collect 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 even without a physical presence. Now most large online retailers collect and pay sales tax based on where you live, just as brick-and-mortar stores do.
However, the rule does not apply uniformly to all sellers. Some small sellers and marketplaces may not collect sales tax, especially if they operate across multiple states. When you check out online, the tax should be shown before you complete your purchase, just like in a physical store. If you buy from a seller who does not collect sales tax, you may technically owe "use tax" to your state, though most individuals do not report this on their own.
The difference between sales tax and use tax
Use tax is a tax on goods you buy outside your state and bring home, or goods you buy online from a seller who does not collect sales tax. It is meant to prevent people from avoiding sales tax by shopping in a lower-tax state or online. The rate is usually the same as your state's sales tax rate.
In practice, most individuals do not pay use tax because it is not automatically collected at checkout — you would have to report it yourself on your state tax return. Businesses, however, are expected to track and pay use tax on purchases they make out of state. If you buy a car in a neighboring state with lower sales tax and register it in your home state, you will likely owe use tax when you register it.
Who collects sales tax and where it goes
The seller — the store, restaurant, or online retailer — collects sales tax from you at the point of sale. They then hold that money and send it to the state tax authority on a regular schedule, usually monthly or quarterly. The seller does not keep the tax; they are acting as a collector on behalf of the government.
The money collected goes to the state government and, if applicable, to local governments. States use sales tax revenue to fund schools, roads, public services, and other government operations. Local governments use their portion for city or county services. The exact breakdown depends on your state and local tax laws.
How to find the sales tax rate where you live
Your state's sales tax rate is public information. You can find it by visiting your state's Department of Revenue or Tax Commissioner website — search "[your state] sales tax rate" to find the official page. That page will show you the state rate and often a breakdown by county or city.
If you are shopping in a different location, you can look up that location's rate the same way. Many retailers also display the total tax amount on your receipt, so you can see exactly what rate was applied. If you are buying something expensive and the tax rate matters to your decision, it is worth checking before you purchase.
Frequently Asked Questions
Why do some states have no sales tax?
States without sales tax rely on other revenue sources, such as income tax, property tax, or natural resource taxes. Alaska, for example, has oil revenue. These states made different policy choices about how to fund government services. There is no federal rule requiring sales tax.
Do I pay sales tax on groceries?
It depends on your state. Most states exempt groceries and food for home consumption from sales tax. However, some states tax groceries at the full rate, and others tax them at a reduced rate. Prepared food, restaurant meals, and snacks are usually taxed even in states that exempt groceries. Check your state's tax authority website to be sure.
Can I get sales tax refunded if I return something?
Yes. When you return an item, the store refunds both the purchase price and the sales tax. You will see the tax amount reversed on your receipt or refund. If you paid with a credit card, the refund including tax goes back to that card.
Is sales tax the same everywhere in my state?
No. The state rate is the same statewide, but counties and cities often add their own local sales tax on top. So a 5 percent state rate might become 7 percent in one county and 8 percent in another. The total rate depends on where you make the purchase, not where you live.
Do I have to pay sales tax on services?
It depends on the service and your state. Some states tax all services, some tax none, and some tax specific services like haircuts or repairs. Restaurants and bars are taxed in most states. Check your state's tax authority website for a list of which services are taxed in your area.