Sales taxes pay for the public services that state, county, and city governments deliver every day. When you ask what sales taxes are used for, the short answer is public schools, Medicaid and other health programs, road and bridge repair, buses and rail, police and fire departments, parks, libraries, and the routine cost of running a city or county. Together, state and local governments collected roughly $607 billion from general sales and gross receipts taxes over the four quarters ending in late 2025, making this one of the largest revenue streams for any level of government below the federal.1Federal Reserve Bank of St. Louis. National Totals of State and Local Government Tax Revenue
Most of that money is not tied to any single program. In the majority of states, sales tax revenue flows into a general fund, and legislators divide the pool during the annual budget process. A few states earmark part of the collections for specific uses like education or transportation, which locks in funding regardless of what else happens in the budget. General sales taxes account for roughly 14 percent of state general revenue nationwide, and the share runs higher in states that don’t levy an income tax.2Tax Policy Center. How Do State and Local General Sales and Gross Receipts Taxes Work
Public Schools
Education is the single largest spending category for state governments, and sales tax dollars are a big reason schools stay open. About 46 percent of all public school revenue comes from state sources, with the rest split between local property taxes and federal aid.3National Center for Education Statistics. Public School Revenue Sources Sales taxes make up a substantial chunk of that state share, though the exact proportion depends on whether the state also has an income tax.
At the K-12 level, this revenue covers teacher and staff salaries, health benefits, classroom supplies, building maintenance, and technology. State distributions matter most in lower-income districts, where property values alone don’t generate enough to run a school. Many states also route sales tax dollars into community colleges and teacher retirement systems, though those allocations depend on each state’s priorities.
Health Care and Social Services
Medicaid is typically the second-largest category of state general fund spending after K-12 education, consuming roughly 19 percent of general fund dollars. Because sales tax revenue flows into that general fund, it directly supports the state share of Medicaid, which pays for health care for low-income residents, children, pregnant women, and people with disabilities. Federal matching funds multiply every dollar the state puts in, so sales tax money spent on Medicaid pulls in additional federal dollars.
Beyond Medicaid, the same revenue helps fund state-run health clinics that provide immunizations, screenings, and basic care. Mental health and substance abuse programs draw from the pool, along with child welfare services that manage foster care and protective investigations. Senior nutrition and in-home support for elderly residents round out the health and human services budget in most states. These programs rarely have a dedicated sales tax line item; they compete for general fund dollars against everything else.
Roads, Bridges, and Public Transit
Gasoline taxes and vehicle registration fees are the traditional funding sources for transportation, but general sales tax revenue plays a growing role. State transportation departments use it to repair highways, resurface local roads, and maintain bridges. Routine work like pothole filling and guardrail replacement often draws from this stream, especially when fuel tax collections fall short.4Federal Highway Administration. State Revenue
Public transit depends on sales tax funding even more directly. In many metropolitan areas, voters have approved dedicated local sales taxes specifically for bus service, light rail construction, and fleet maintenance.5Bureau of Transportation Statistics. Transportation Economic Trends: Government Transportation Revenue These voter-approved levies are often the primary funding mechanism for expanding transit in growing cities. Without them, many agencies couldn’t afford new vehicles or extended routes.
Police, Fire, and Emergency Services
Public safety is one of the most visible uses of sales tax revenue at the local level. Police departments draw the bulk of their budgets from local general funds, and nearly all of that spending goes toward salaries and benefits for officers and support staff.6Urban Institute. Criminal Justice Expenditures: Police, Corrections, and Courts The same pattern holds for fire departments, which use general fund allocations to maintain staffing and provide specialized training. In some communities, voters have approved dedicated sales tax levies to hire more officers or replace aging fire equipment.
Emergency medical services and 911 dispatch centers also receive general fund support. Local court systems draw from the same pool to pay judges, clerks, and other staff who keep the justice system running.
Parks, Libraries, and Everyday Government
The services that shape daily quality of life come from sales tax dollars too. Municipal and state park departments use the revenue for trail maintenance, landscaping, facility upkeep, and recreational programming. Public libraries fund their collections, staff, and community programs through similar general fund allocations. These items rarely get dedicated earmarks, so they’re often first in line for cuts when revenue drops.
General administrative costs come out of the same pot: salaries for elected officials and government employees, maintenance of public buildings, IT systems, and the day-to-day work of running a city or county. It’s not glamorous spending, but it keeps permits processing, vital records accessible, and public meetings happening.
Voter-Approved Local Sales Taxes for Specific Projects
Many states let counties and cities ask voters to approve additional sales taxes tied to specific projects. These usually last for a set number of years and pay for capital work like new schools, road construction, transit expansions, or public safety facilities. Voters get a concrete list of what the money will build, and the tax expires when the projects are done or the time limit runs out.
A county might pass a half-cent sales tax to build a new hospital wing, while a neighboring county uses the same tool to widen a congested highway. The distinction from regular sales taxes is transparency: voters know exactly what they’re paying for and for how long.
Why the Available Amount Goes Up and Down
Sales tax revenue tracks consumer spending, which means it falls in recessions and rises in booms. When people lose jobs or tighten their budgets, they buy less, and government revenue shrinks precisely when demand for public services grows. That volatility is one of the biggest challenges for governments that lean heavily on sales tax.
Every state maintains some form of rainy day fund, also called a budget stabilization fund, to cushion these swings.7Tax Policy Center. What Are State Rainy Day Funds and How Do They Work The idea is to set aside surplus revenue in good years so schools and fire departments don’t take the hit in bad ones. In practice, deposit and withdrawal rules vary widely, and many states have historically underfunded their reserves. States that rely more on sales tax than on income tax tend to face sharper swings, because consumer spending reacts to shocks faster than payroll does.
Who Ends Up Paying
Sales taxes are regressive, meaning they take a larger share of income from lower-income households than from wealthier ones.8Internal Revenue Service. Theme 3: Fairness in Taxes – Lesson 2: Regressive Taxes A family earning $30,000 a year that spends most of its income on taxable goods pays a much higher effective tax rate than a family earning $300,000 that saves or invests a large share. That’s the central policy tension: sales taxes are easy to administer and hard to evade, but the burden falls hardest on people who can least afford it.
Most states soften the effect through exemptions. More than 30 states and the District of Columbia exempt groceries purchased for home consumption from the state sales tax. Prescription medications are exempt in nearly every state. Some states also exempt clothing or hold periodic sales tax holidays for school supplies and other essentials. These carve-outs reduce revenue, but they also reduce how much of the tax load lands on everyday necessities.