Sales tax is a percentage added to the price of goods, and sometimes services, when you buy them. The seller collects it at checkout and sends it to the state or local government. Depending on where you shop, the combined state and local rate typically runs from around 4% to more than 10% of the purchase price, and it applies only to what you spend, not to what you earn or save. The money funds public services like roads, schools, and emergency response.
How the Tax Reaches the Government
You pay it. The store collects it. The store later hands it over to the state.
That go-between arrangement matters more than it looks. The dollars a business collects as sales tax don’t belong to the business. They’re held in trust for the taxing authority until they’re remitted, which is why states treat unpaid sales tax so seriously when a business gets into trouble.
Before a seller can charge you sales tax, it generally has to register with the state for a sales tax permit (sometimes called a seller’s permit). After registering, the business files periodic returns reporting taxable sales and paying over what it collected.
What Gets Taxed and What Doesn’t
The default target is tangible personal property: physical things you can touch, like electronics, furniture, clothing, and vehicles. If you’re buying a physical product, expect to pay sales tax on it unless a specific exemption applies.
Groceries and Prepared Food
Unprepared grocery basics such as bread, milk, fruit, and vegetables bought for home cooking are one of the most common exemptions. A majority of states fully exempt these staples, and a handful tax them at a reduced rate. Prepared food is almost always taxable. The dividing line usually comes down to whether the seller heated the food or handed you utensils. A loaf of bread from the aisle is typically exempt; a heated sandwich from the deli counter is not.
Services
Whether services are taxable depends heavily on your state. Some states tax a wide range of labor-based work, from landscaping to haircuts to auto repair. Others limit sales tax almost entirely to physical goods. There’s no national rule, so check your state’s list before assuming a service is or isn’t taxable.
Digital Goods and Streaming
About 30 states now tax some form of digital product, though what counts varies widely. Downloaded music, e-books, and movies are commonly taxed. Subscription streaming sits in a gray area: some states tax it explicitly, others only tax permanent downloads, and a few exempt digital goods entirely.1National Conference of State Legislatures. Taxation of Digital Products Cloud-based software (often called SaaS) adds another layer, and states are actively updating their rules to catch up.
Prescriptions and Other Common Exemptions
Nearly every state exempts prescription medications. Many also exempt medical devices, certain clothing items, and other essentials treated as necessities. Nonprofits with tax-exempt status may qualify for exemptions on purchases tied to their charitable purpose, though the organization usually has to present an exemption certificate to the seller.
Shipping Charges
Whether shipping is taxed depends on the state and on how the charge appears on the invoice. In roughly 31 states, shipping tied to a taxable item is also taxable. Some states exempt shipping if it’s listed separately from the product price. If the item itself is exempt, the shipping charge generally is too.
Why Rates Change From Town to Town
There is no federal sales tax in the United States. Instead, state and local governments each set their own rates, and those layers stack. A single purchase can pick up a state base rate plus county, city, and special-district taxes funding things like transit and local infrastructure.
State base rates generally run between 4% and 7.5%. Once local taxes are added, combined rates climb higher. As of January 2026, the five highest average combined rates belong to Louisiana (10.11%), Tennessee (9.61%), Washington (9.51%), Arkansas (9.46%), and Alabama (9.46%).2Tax Foundation. State and Local Sales Tax Rates, 2026 Because local rates differ within the same state, the tax on the same item can change from one town to the next.
The Five States Without a Statewide Sales Tax
Alaska, Delaware, Montana, New Hampshire, and Oregon don’t impose a statewide sales tax. (The acronym NOMAD is sometimes used as a memory aid.) These states raise revenue through other channels like income taxes, property taxes, or resource-extraction fees. Even in these states, some local jurisdictions may impose limited taxes on specific things like lodging or prepared food.
Sales Tax Holidays
Around 18 states offer temporary sales tax holidays, short windows during which certain goods are exempt. The most common is the back-to-school holiday held in late July or August, covering clothing, footwear, school supplies, and sometimes computers up to a set price cap.3Federation of Tax Administrators. 2025 Sales Tax Holidays Some states also run holidays for emergency preparedness supplies or energy-efficient appliances. The exact dates, categories, and price caps vary by state and year.
Why Out-of-State Sellers Now Charge You Sales Tax
For a long time, online retailers only had to collect sales tax in states where they had a physical presence, such as a store, warehouse, or employees. That changed in 2018, when the Supreme Court ruled in South Dakota v. Wayfair, Inc. that states can require out-of-state sellers to collect sales tax based on their economic activity in the state alone, without any physical presence.4Supreme Court of the United States. South Dakota v. Wayfair, Inc.
The threshold that triggers this obligation varies by state but most commonly sits at $100,000 in annual sales delivered into the state. About 35 states use that dollar figure, and some also include a transaction count such as 200 or more separate sales.5Streamlined Sales Tax. Remote Seller State Guidance Once a seller crosses the threshold, it has to register, collect, and remit sales tax in that state no matter where it’s located.
If you buy through a large platform like Amazon, eBay, or Etsy, the platform itself usually collects the tax. At least 46 states and Washington, D.C., have enacted marketplace facilitator laws that treat the platform as the retailer for tax purposes, so the site handles the collection and payment rather than each individual seller.
Use Tax: What You Owe on Untaxed Purchases
Use tax is the counterpart to sales tax, designed to catch purchases where no sales tax was collected. It comes up most often when you buy from an out-of-state seller that isn’t required to charge your state’s tax, or when you buy in a lower-tax state and bring the item home.
Use tax rates are generally set equal to your local sales tax rate, so the total burden is the same whether you buy locally or from out of state. The legal obligation falls on you as the buyer to report and pay it. Many states include a use tax line on the annual state income tax return, and some provide a lookup table based on your income so you don’t have to track every purchase. Skipping this can lead to interest and penalties if your return is audited.
If You Sell: Permits, Resale Certificates, and Personal Liability
Registering for a sales tax permit is typically the first step before making taxable sales. Most states offer free registration, though a few charge a small fee or require a refundable security deposit, and you can usually apply online through your state’s tax agency.
After registering, you’ll be assigned a filing frequency (monthly, quarterly, or annually) based on your expected sales volume. Returns are due even for periods with no taxable sales; a zero-dollar return still has to be filed. Late filings trigger penalties that commonly run as a percentage of the unpaid tax, often 5% to 10% per month, sometimes with a minimum flat fee that applies even to a zero return.
If you buy inventory to resell, you generally don’t pay sales tax on the wholesale purchase. Instead, you give the supplier a resale certificate, a signed document stating the goods are for resale rather than personal use. The tax is collected later, when you sell to the final customer, so the same product isn’t taxed twice. Misusing a resale certificate to avoid tax on a personal purchase can lead to back taxes with interest, civil fines, and, depending on the amount, criminal charges ranging from misdemeanors to felonies.
One risk deserves its own paragraph. Because sales tax is money collected on behalf of the government, states treat it as a trust fund. If a business fails to turn over collected sales tax, states can hold individual owners, officers, or managers personally responsible for the unpaid amount. The debt doesn’t go away when the business closes or files bankruptcy, and it typically reaches anyone who had control over the finances or the authority to direct tax payments.