Yes, sales tax is regressive: it takes a larger share of income from lower earners than from higher earners. The rate at the register is the same for everyone, but lower-income households spend nearly all of what they earn on taxable goods and services, while higher-income households route much of their income into savings and investments that sales tax never touches. Combined state and local rates average 7.53 percent nationwide as of early 2026, and 45 states plus the District of Columbia impose a general sales tax.1Tax Foundation. State and Local Sales Tax Rates, 2026
What Regressive Means in Practice
A tax is regressive when it consumes a bigger percentage of a lower earner’s income than a higher earner’s. Sales tax fits because the charge is tied to what you buy, not what you make. Seven percent on a $50 purchase is $3.50 whether the shopper earns $25,000 or $250,000. The dollar amount is identical. The share of the paycheck is not.
Consider two households at the average combined rate. Someone earning $30,000 who spends $27,000 on taxable goods and services pays roughly $2,033 in sales tax over the year, about 6.8 percent of income. Someone earning $150,000 who spends $60,000 on taxable purchases pays about $4,518, or 3.0 percent of income.1Tax Foundation. State and Local Sales Tax Rates, 2026 The higher earner writes a bigger check and keeps a much bigger share of the paycheck.
Why Lower Earners Pay a Larger Share
Households with lower annual earnings tend to spend almost every dollar on immediate needs: rent, food, household supplies, transportation, clothing. When nearly all income flows through a cash register, nearly all of it picks up a sales tax charge along the way. Over a year, that cumulative charge can rival what these families owe in income tax.
Federal spending data reflects this. In 2024, the average household in the lowest income quintile spent roughly $35,046 on goods and services, while households in the highest quintile averaged about $150,342. For the lower quintile, spending often exceeded reported income, made up through savings drawdowns, credit, or assistance. That near-total consumption rate means almost every earned dollar meets the sales tax.
The escape routes higher earners use are closed off. When there is no surplus, there is nothing to redirect into a retirement account, a brokerage, or savings. Every dollar has to be spent, and the tax follows it.
Why Higher Earners Pay a Smaller Share
Once basic expenses are covered, higher earners move a growing share of income into channels the sales tax cannot reach. Money going into brokerage accounts, retirement funds, home equity, and bank deposits does not trigger sales tax. As earnings rise, the fraction of income that sits in those channels grows, and the effective sales tax rate falls.
Higher-income households do buy more expensive things: better cars, nicer furniture, pricier electronics. But luxury spending rarely keeps pace with total income. Someone earning $500,000 a year is unlikely to spend $500,000 on taxable consumer goods. The rest sits where sales tax cannot follow, and the effective rate keeps sliding lower.
Where you live changes the size of the effect. Combined state and local rates run from zero in Alaska, Delaware, Montana, New Hampshire, and Oregon to over 10 percent in the highest-tax jurisdictions.1Tax Foundation. State and Local Sales Tax Rates, 2026 The regressive pattern holds wherever a sales tax exists; the state rate just amplifies or softens it.
Exemptions That Soften the Effect
Many states pull essentials out of the taxable base because those are the items lower-income households cannot avoid buying. Exemptions do not eliminate regressivity, but they narrow the gap.
Groceries
Unprepared food for home consumption is the most common exemption. Thirty-three states and the District of Columbia fully exempt grocery food from state-level sales tax, and four more apply a reduced rate. Prepared food, such as restaurant meals or heated deli items, generally stays taxable. Because food takes up a disproportionate share of lower-income budgets, this exemption does real work in reducing the effective rate for those households.
Prescription Medications
Nearly every state with a sales tax exempts prescription drugs. The exemption typically covers medications that federal or state law requires to be dispensed by prescription, and often includes insulin and related diabetic supplies.2Legal Information Institute. Florida Code Annotated Rules 12A-1.020 – Licensed Practitioners, Drugs, Medical Products and Supplies Some states also exempt certain over-the-counter items from approved lists.
Menstrual Products
As of early 2026, 32 states have removed sales tax on menstrual products, treating them as essential health items. Eighteen states still tax them. Bills to ban state-level taxation of these products nationwide have been introduced at the federal level, though none had been enacted as of this writing.
Utilities and Clothing
Some states exempt electricity, heating fuel, or other residential utilities, costs that eat a larger portion of lower-income budgets. A handful of states also exempt everyday clothing and footwear. The covered items and any price caps vary by state.
Why Sales Tax Holidays Don’t Fix the Gap
About 18 states run temporary sales tax holidays, most timed around back-to-school shopping.3Tax Foundation. Sales Tax Holidays by State For a weekend or a week, certain categories become tax-free up to a per-item cap. Clothing and footwear are the most common, usually capped at $100 per item, with school supplies, computers, or books sometimes included.
The relief is modest. Everyone qualifies, not just lower-income shoppers, and a brief window does not change the burden over the other 50-plus weeks of the year. Holidays are consumer incentives more than structural fixes.
The Federal Sales Tax Deduction Rarely Helps
Taxpayers who itemize on their federal return can deduct either state and local income tax or state and local sales tax, but not both.4Internal Revenue Service. Instructions for Schedule A (Form 1040) The sales tax option matters most for residents of states with no income tax. For 2026, the combined state and local tax deduction is capped at $40,400 for most filers ($20,200 if married filing separately), phasing down to a $10,000 floor for individuals and couples with income above $500,000.5Bipartisan Policy Center. SALT Deduction Changes in the One Big Beautiful Bill Act
In practice, this deduction does little to offset regressivity. The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, and only about 10 percent of taxpayers itemize at all.6Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Those who itemize tend to be higher earners, the group already paying the smallest share of income in sales tax. Lower-income households, who carry the heaviest sales tax load relative to earnings, almost never benefit.
Digital Goods Are Widening the Base
As spending shifts toward digital products, the sales tax base is following. Around 41 state-level jurisdictions now tax at least some category of digital goods, streaming subscriptions, or cloud-based software.7National Conference of State Legislatures. Taxation of Digital Products Some states tax only permanent downloads. Others reach subscription streaming and software-as-a-service.
Streaming subscriptions are now a common household expense across income levels, so this tax hits lower-income budgets in the same flat-rate way traditional sales tax does. Unlike groceries or prescriptions, digital subscriptions rarely qualify for exemptions. As more states bring digital goods into the taxable base, the regressive gap may widen rather than narrow.