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 where you live — it can range from zero percent in some states to over 10 percent in certain cities. The business collects the money from you and sends it to the government on a regular schedule, usually monthly or quarterly.

Sales tax applies to most physical items you can touch and take home. Groceries, clothing, electronics, furniture, and gas all typically have sales tax. Some services are taxed too — haircuts, car repairs, and restaurant meals often include it. But not everything is taxed the same way. Some states don't tax groceries. Some don't tax clothing. A few states have no sales tax at all.

Key Takeaways

  • Sales tax is added at checkout and varies by state and city, ranging from zero to over 10 percent depending on where you live.
  • The business collects the tax from you and sends it to the government; the tax does not go to the store.
  • Most physical goods are taxed, but groceries, prescription medications, and some services may be exempt depending on your state.
  • Online purchases are now subject to sales tax in most states, even if the seller is out of state.

Which states have sales tax and which don't

Five states have no sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. If you live in one of these states, you pay no sales tax on purchases. The other 45 states all have a statewide sales tax, but the rate differs. Some states charge 4 percent; others charge 7 percent or higher. A few states tax groceries at a lower rate than other items, or don't tax them at all.

On top of the state tax, many cities and counties add their own local sales tax. This means the total tax you pay can be much higher than the state rate alone. For example, your state might charge 6 percent, but your city adds another 2 percent, so you pay 8 percent total. The rate changes depending on which city or county you're in, even within the same state. You can find your local rate by searching online for your zip code and "sales tax rate," or by asking a cashier.

What is and isn't taxed

Most items you buy in stores are taxed. Clothing, shoes, electronics, furniture, toys, and household goods all have sales tax in most states. Gas at the pump is taxed. Restaurant meals are taxed. Haircuts and other personal services are usually taxed too.

Some things are exempt from sales tax in most states. Prescription medications are almost never taxed. Groceries — items you buy to cook at home — are often not taxed or taxed at a lower rate. Medical equipment like wheelchairs or hearing aids may be exempt. The rules vary by state, so what's tax-free in one state might be taxed in another. Items bought for resale by a business are not taxed, because the tax will be collected when the customer buys the final product.

How sales tax works on online purchases

For many years, online purchases were not taxed if the seller didn't have 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. Now most states require large online retailers — including Amazon, Walmart, and others — to collect and send sales tax on purchases shipped to that state, even if the company has no store there.

When you buy something online, the tax is calculated based on the shipping address you provide, not where the seller is located. If you order from out of state and have it shipped to your home, you pay your local sales tax rate. Some small sellers and marketplaces may not yet collect sales tax, but the trend is toward collecting it everywhere. If you're unsure whether tax was added to an online order, check your receipt or invoice.

The difference between sales tax and income tax

Sales tax and income tax are two separate taxes that go to different places. Sales tax is added when you buy something and goes to your state or local government. Income tax is taken from your paycheck and also goes to your state or local government, plus the federal government. You pay income tax based on how much money you earn; you pay sales tax based on what you spend.

Some states have both sales tax and income tax. Some have only sales tax and no income tax. A few have neither. The combination of these taxes is one reason the total tax burden varies so much from state to state. If you move to a new state, the sales tax rate you pay will change, and you may also pay a different income tax rate or no income tax at all.

Why sales tax matters for your budget

Sales tax increases the final price of everything you buy, so it's worth factoring into your budget. If something is priced at $100 and your sales tax is 8 percent, you'll actually pay $108. Over time, this adds up. If you spend $500 a month on taxable items and your rate is 7 percent, you're paying about $35 a month in sales tax — or $420 a year.

Understanding your local sales tax rate helps you plan purchases and know what you'll actually pay at checkout. It also helps you understand your total cost of living if you move to a different state. Some people factor in sales tax differences when deciding where to live or whether to make large purchases in a neighboring state with a lower rate.

Frequently Asked Questions

Do I have to pay sales tax on everything I buy?

No. Most states exempt groceries, prescription medications, and some medical equipment from sales tax. Some states don't tax clothing or certain services. The rules vary by state, so check your state's tax website to see what's exempt where you live.

Why is the sales tax different in different cities?

Cities and counties add their own local sales tax on top of the state rate. Your total tax is the state rate plus any local rates that apply to your address. This is why two cities in the same state can have different total tax rates.

Do I pay sales tax if I buy something online from another state?

Yes, in most cases. The seller collects sales tax based on where you have it shipped, not where they are located. The tax rate is your local rate at the delivery address. Some very small sellers may not collect it yet, but most major retailers do.

Can I get sales tax back if I return something?

Yes. When you return an item and get a refund, the sales tax is refunded too. The refund amount should match what you paid, including the tax. Keep your receipt to show the original amount paid.