How US Sales Tax Works
· USDataDesk
Unlike most developed countries, which use a national value-added tax (VAT), the United States has no federal sales tax. Sales tax is set by each state, and in most states by counties, cities, and special districts on top of that. This is why the total on your receipt changes when you drive one town over, and why “the sales tax rate” is really thousands of different rates.
The stack
The rate printed on a receipt is typically two or three layers added together:
- State rate — from 0% (five states) up to 7.25% (California, the highest statewide rate).
- County rate — added in the majority of states, commonly 0.5%–2%.
- City and special-district rates — municipal taxes plus levies for transit authorities, stadium districts, tourism-improvement zones, and the like.
Combined rates run from 0% to about 10%+ depending on the exact address — parts of Louisiana, Tennessee, Arkansas, Alabama, and Washington regularly top 9.5%. The sales tax by state page ranks the combined state-plus-average-local rate for all 50 states and DC.
The five states with no statewide sales tax
Delaware, Montana, New Hampshire, and Oregon have no sales tax at any level. Alaska has no state sales tax but permits local ones, so many Alaskan boroughs and cities do levy a sales tax (often 2%–7%). A common mnemonic for the no-sales-tax states is NOMAD (New Hampshire, Oregon, Montana, Alaska, Delaware).
What actually gets taxed: the base
The headline rate is only half the story. Each state defines its own tax base — the list of things the rate applies to — and the differences are large:
- Groceries. Most states exempt unprepared food entirely or tax it at a reduced rate. A handful still tax groceries at the full rate (sometimes with a credit for low-income households). Prepared/restaurant food is almost always fully taxed.
- Prescription drugs. Exempt in essentially every state. Over-the-counter drugs vary.
- Clothing. Fully exempt in a few states (Minnesota, New Jersey, Pennsylvania for most items), exempt below a price cap in others (New York, Massachusetts), fully taxed in most.
- Digital goods and streaming. Increasingly taxed, but inconsistently — some states tax downloads and subscriptions, others do not.
- Services. Traditionally untaxed, but states are steadily adding services (repair, landscaping, some professional services) to the base to raise revenue.
Because of this, two states with the same headline rate can produce very different bills for the same shopping basket. A state that taxes groceries and clothing at 5% can extract more from a typical household than one at 7% that exempts both.
Online orders: destination sourcing and Wayfair
For decades, a retailer only had to collect a state’s sales tax if it had a physical presence (“nexus”) there, so out-of-state online sellers often collected nothing. The 2018 Supreme Court decision South Dakota v. Wayfair changed that: states may now require remote sellers to collect once they pass an economic nexus threshold (commonly $100,000 in sales or 200 transactions into the state per year).
Most states use destination sourcing for these sales: the rate charged is the one at the buyer’s shipping address, not the seller’s location or warehouse. That is why the same item, from the same site, rings up a different total shipped to two different ZIP codes. Marketplace facilitator laws further require platforms like Amazon, Etsy, and eBay to collect on behalf of their third-party sellers.
A few states use origin sourcing for in-state sales (the rate at the seller’s location), which mainly matters for local brick-and-mortar businesses.
Use tax: the other half
If you legitimately buy something with no sales tax collected — from a small out-of-state seller below the threshold, or by carrying goods home from Oregon — and then use it in a state that would have taxed it, you technically owe use tax at your local rate. Businesses self-assess it routinely and it is a standard audit item; individuals rarely pay it except on registrable purchases like cars, where the DMV collects it before issuing a title. See sales tax vs use tax.
How much is that on a real purchase?
The combined rate is applied to the taxable price after any manufacturer coupons but usually before store loyalty discounts (rules vary). A quick table at a few common combined rates:
| Purchase (taxable) | 6.0% | 7.5% | 9.0% | 10.0% |
|---|---|---|---|---|
| $20 | $1.20 | $1.50 | $1.80 | $2.00 |
| $100 | $6.00 | $7.50 | $9.00 | $10.00 |
| $500 | $30.00 | $37.50 | $45.00 | $50.00 |
| $2,000 | $120.00 | $150.00 | $180.00 | $200.00 |
On a $40,000 car the gap between a 6% and a 9% jurisdiction is $1,200 — which is why big-ticket buyers sometimes care where they take delivery, though states close that loophole by charging use tax at the buyer’s home rate when the vehicle is registered.
Sales tax holidays
Many states run temporary exemptions on defined categories for a weekend or a week — most commonly a back-to-school holiday (clothing, shoes, school supplies, sometimes computers under a price cap), and in hurricane-prone states an emergency-preparedness or “second amendment” holiday. During the holiday the state rate is waived on qualifying items up to a cap; some cities and counties opt out and still charge their local portion. The exact dates, categories, and price caps change year to year, so check the state Department of Revenue’s announcement rather than assuming last year’s rules.
Business obligations, briefly
If you sell into a state, you may have to register, collect, and remit its sales tax once you cross an economic-nexus threshold (commonly $100,000 in sales or 200 transactions per year into that state), or the moment you have physical nexus — an office, employee, warehouse, or inventory there (including goods held in a marketplace’s fulfilment centre). Marketplace facilitator laws shift collection to the platform for sales made through it, but your own direct sales still count toward your thresholds. Filing frequency (monthly, quarterly, annually) is assigned by each state based on your volume.
Common misconceptions
- “There’s a US sales tax rate.” There isn’t — it is set at the state and local level, thousands of combinations.
- “Online purchases are tax-free.” Not since Wayfair; most now have tax collected at your address.
- “Same rate means same cost.” The base (what is taxed) matters as much as the rate.
- “Alaska has no sales tax.” No state sales tax; many localities have one.
The bottom line
US sales tax is a state-and-local stack, from 0% to over 10% combined, applied to a base that each state defines differently — so groceries, clothing, and services may or may not be taxed where you are. Online orders are generally taxed at your shipping address under destination sourcing. Look up any state’s combined rate on the sales tax by state page, and confirm the exact rate for a specific address with that state’s Department of Revenue.