How Sales Tax Works by State
Sales tax looks simple at the register: a percentage is added to the price. Behind it sits a patchwork of 45 state systems, thousands of local jurisdictions and a long list of exemptions. The same $100 purchase can come to $100 or $110 depending on where you buy it. This guide explains how the system works, why the rate on your receipt may not match the number you find online and how to estimate what you will pay.
State rate, local rate and the combined rate
Sales tax in most states has two layers. The state sets a base rate, and cities, counties and special districts may add their own. What you pay is the combined rate. For example, in Texas the state rate is 6.25%, and local jurisdictions can add up to 2% for a maximum of 8.25%. The average local rate in Texas is 1.95%, so the average combined rate is 8.20%. A $100 purchase there costs on average $108.20.
Because local rates vary within a state, the figures in our sales tax calculator are averages. For a precise rate, use your state revenue department’s lookup tool for your address.
Five states with no statewide sales tax
Alaska, Delaware, Montana, New Hampshire and Oregon do not levy a statewide sales tax. They make up revenue in other ways: Delaware has a gross receipts tax on businesses, Oregon and Montana rely on income taxes, New Hampshire depends on property and business taxes, and Alaska draws on natural resources revenue. Alaska is the exception that allows local sales taxes, so shoppers in many Alaskan towns still pay something, averaging 1.82%. Montana allows a resort tax in a few tourist areas.
Highest and lowest combined rates
| State | State rate | Avg. local | Combined |
|---|---|---|---|
| Louisiana | 5% | 5.13% | 10.13% |
| Tennessee | 7% | 2.61% | 9.61% |
| Washington | 6.5% | 3.07% | 9.57% |
| Arkansas | 6.5% | 2.98% | 9.48% |
| Alabama | 4% | 5.46% | 9.46% |
| Oklahoma | 4.5% | 4.56% | 9.06% |
| California | 7.25% | 1.78% | 9.03% |
| Illinois | 6.25% | 2.73% | 8.98% |
The full list of all 50 states and DC is in the sales tax calculator page. Note that high sales tax states often have lower income taxes (Tennessee, Washington and Texas have none), so the overall burden depends on how you earn and spend; see states with no income tax.
What gets taxed, and what does not
Each state decides its own tax base. Common patterns include:
- Groceries: many states exempt unprepared food or tax it at a reduced rate, though some tax it fully. Prepared food and restaurant meals are almost always taxable.
- Prescription drugs: exempt in nearly every state; over-the-counter drugs vary.
- Clothing: taxable in most states, with exemptions or holidays in a few (such as Pennsylvania and New Jersey, which exempt most clothing).
- Services: traditionally untaxed in most states, but a growing number tax some services such as repairs, digital services or subscriptions.
- Digital goods: rules differ widely for downloads, streaming and software.
- Cars: often taxed at the state and local rate at registration rather than at the dealer.
Some states hold sales tax holidays, usually for school supplies or emergency preparedness items, which temporarily waive tax on listed products.
Online purchases and use tax
Before 2018, online sellers needed a physical presence in a state to collect its sales tax. In South Dakota v. Wayfair, the Supreme Court allowed states to require collection from remote sellers based on economic activity, usually a threshold such as $100,000 in sales or 200 transactions. Most states now have such rules, and marketplaces like Amazon collect tax on behalf of third-party sellers. If a seller does not charge you tax, you may owe use tax at your state’s rate, which is reported on your state income tax return in many states. In practice, compliance is low for small purchases, but large ones, such as furniture or equipment, are likely to be noticed.
Origin versus destination sourcing
For in-state sales, a handful of states use origin-based sourcing, charging the rate at the seller’s location (for example, Texas, Illinois and Ohio use it for some transactions). Most states use destination-based sourcing, charging the rate where the buyer receives the goods. This matters for online and delivery purchases: the same item shipped to two cities can carry different tax.
Frequently asked situations
What if I live near a state border?
You pay the tax where the sale is sourced, which is typically where you take possession. Buying in a no-sales-tax state and bringing the goods home does not erase your obligation; your home state may expect use tax, particularly for vehicles and boats, which are usually taxed at registration at your home state’s rate regardless of where you bought them.
Are tips and delivery fees taxed?
It varies. Voluntary tips are generally not subject to sales tax, but mandatory service charges often are. Delivery and shipping charges are taxable in some states and exempt in others, particularly when separately stated on the invoice.
How do trade-ins work?
Many states reduce the taxable price of a vehicle by the trade-in value, so that tax is paid only on the difference. Others, including California, tax the full price. If you plan a car purchase, check the rules for your state.
Do businesses pay sales tax?
Businesses generally do not pay sales tax on items they purchase for resale, supported by a resale certificate. They do pay tax on supplies and equipment used in the business, though some states offer exemptions for manufacturing equipment. Sellers who collect sales tax hold it on behalf of the state and are responsible for remitting it, usually monthly or quarterly, and for filing returns even when no tax is due.
A short history of why rates differ
The first state sales taxes were adopted during the 1930s, when income tax revenue collapsed in the Depression. Mississippi introduced one in 1930, and most states followed over the next several decades. Because each state and locality chose its own rates and exemptions, the system became complicated, and attempts at standardization, such as the Streamlined Sales Tax agreement, have been joined by only some states. Local add-ons grew as municipalities sought revenue that does not rely on property tax, which is why some of the highest combined rates today come from states with large local components.
How to estimate the tax on a purchase
- Find the combined rate for the delivery or sale location.
- Check whether the item is taxable in that state.
- Multiply the taxable price by the rate: a $450 appliance in a 7.25% area adds $32.63 of tax.
- Add any extra fees, such as bottle deposits or excise taxes, that are separate from sales tax.
For large purchases, the difference between jurisdictions can be a noticeable amount of money, but it is rarely worth driving across a state line. If you do cross a border for a major purchase, you may owe use tax in your home state. And for business owners, collecting and remitting sales tax is a compliance obligation with registration, filing deadlines and penalties, so consult your state department of revenue.
Sales tax and your budget
Sales tax is a regressive tax: it takes a larger share of income from households that spend most of what they earn. Over a year, a household spending $40,000 on taxable goods in a 7% area pays about $2,800. Use the calculator to estimate your own annual figure, and the state tax comparison to see how income tax and take-home pay fit into the picture when comparing places to live.
Sales tax rates and rules change frequently, usually at the start of a quarter or year. Our figures are averages sourced from the Tax Foundation as noted below, and are for general estimates only.