Most physical goods sold in the United States are taxable, along with prepared food, lodging, many digital products, and some services, while unprepared groceries, prescription drugs, and purchases made for resale are commonly exempt. The details vary because 45 states and Washington, D.C. impose a general sales tax while Alaska, Delaware, Montana, New Hampshire, and Oregon do not, and combined state and local rates typically land between 4% and 10%. What follows is a practical guide to taxable items and exemptions, including a few situations where you may owe tax even if the seller never collected it.
Physical Goods Are Taxable by Default
If you can pick it up and carry it out, it is almost certainly taxable. Tax law calls this “tangible personal property,” and it covers any physical item that isn’t permanently attached to land or a building. Furniture, vehicles, clothing, appliances, electronics, sporting goods, office supplies, and tools all fall here. Buy a $1,200 laptop or a $25,000 car, and the seller adds the applicable rate to your total and sends the money to the state.
The same rule applies to business purchases. A company buying desks, warehouse shelving, or heavy machinery is buying tangible personal property, and the transaction is taxable unless a specific exemption applies. Short-lifespan items get the same treatment as durable ones: a case of printer paper and a commercial oven are both taxed at the point of sale.
Common Exemptions: Groceries, Medicine, and More
Not everything on store shelves is taxed the same way. Roughly 36 states fully exempt unprepared groceries from sales tax at the state level, so bread, milk, produce, eggs, and raw meat ring up tax-free. A handful of states still tax groceries at a reduced rate, and a few tax them at the full rate. The direction has been toward broader exemptions: Kansas eliminated its grocery tax in January 2025, and Oklahoma did the same in late 2024.
Prescription medications follow a similar pattern. The vast majority of states exempt drugs prescribed by a doctor and dispensed by a pharmacist. Over-the-counter medications like aspirin and cough syrup, however, are generally taxable in most states.
Other exemptions worth knowing about:
- Clothing. A small number of states exempt everyday clothing from sales tax, sometimes with a per-item price cap often around $100 to $175.
- Resale purchases. Businesses buying inventory to resell can purchase those goods tax-free by giving the seller a resale certificate; the tax is collected later, when the item is sold to the end consumer.
- Trade-in credits. In many states, when you trade in a vehicle or other item, you only pay sales tax on the difference between the new price and your trade-in value.
These exemptions exist because taxing essentials hits lower-income households hardest. The specifics vary by state, so what’s exempt at home may not be exempt where you travel.
Prepared Food Is Taxed Even When Groceries Aren’t
The moment food is heated, served with utensils, or sold ready to eat, it almost always becomes taxable. A raw chicken breast from the grocery store is tax-free in most states; a rotisserie chicken from the deli counter is not. This distinction catches a lot of people off guard.
Restaurant meals, takeout, food truck orders, and catering all generally fall into the prepared-food category. Some jurisdictions go further and impose an additional meals tax on top of the standard sales tax rate. Among the 50 largest U.S. cities, most don’t charge an extra meals tax, but where it exists the surcharge can add anywhere from 1% to over 8% to the bill.
Services and Labor
Services are where sales tax gets messy, because there is no national rule. Each state decides which services are taxable, and the variation is wide. Broadly, most states don’t tax pure professional services like legal advice, accounting, or medical consultations, treating them as the sale of expertise rather than a product.
Labor tied to physical property is often taxable. When a mechanic charges $500 for parts and $300 for labor to fix a transmission, many states tax the entire $800 because the labor produced a tangible result. The same logic applies to landscaping, plumbing, electrical work, and appliance repair.
Fabrication labor is treated even more strictly. When someone transforms raw materials into a finished product for you, say a woodworker building custom cabinets from lumber you selected, the labor is treated as part of the product’s retail price, and the entire bill is typically taxable.
Installation labor sits in a gray area. Some states tax it, some don’t, and some only tax it when it’s bundled with the sale of the item being installed. For a significant project, a two-minute call to your state tax agency is worth making before you sign.
Digital Products and Software
Tax codes now reach products that don’t exist in physical form but function like traditional goods. Downloaded music, e-books, streaming subscriptions, video game purchases, and mobile apps are taxable in a growing number of states. The reasoning is simple: if a physical book is taxable, there’s no policy reason a digital book shouldn’t be.
Software is a particularly active area. Most states tax “prewritten” or “canned” software, meaning off-the-shelf programs and subscription tools used without modification. Software as a Service, where you access an application through a web browser instead of installing it, is taxable in roughly 25 jurisdictions as of 2025, and that number keeps climbing. Custom software built for a single client is often exempt, because states view it more as a professional service than a product.
Cloud computing services such as infrastructure as a service and platform as a service are newer territory. A few states have started taxing these, but most haven’t caught up. Maryland became one of the first to explicitly tax data services and cloud computing in 2025, applying a 3% rate to cloud storage and data center co-location. Small tax charges on monthly streaming bills or app store purchases reflect this same shift.
Excise Taxes on Specific Products
Some products carry an extra tax layer beyond the general sales tax. Excise taxes are targeted levies on specific goods, and they are usually baked into the sticker price rather than added at the register. You are paying them without necessarily seeing a separate line item.
The main federal excise categories:
- Cigarettes. The federal excise tax is $50.33 per thousand, which works out to about $1.01 per pack. States pile on their own excise taxes on top of that.1Office of the Law Revision Counsel. 26 U.S. Code 5701 – Rate of Tax
- Gasoline. The federal tax is 18.4 cents per gallon (18.3 cents plus a 0.1-cent surcharge for the Leaking Underground Storage Tank Trust Fund). Diesel is higher at 24.4 cents per gallon. These rates haven’t changed since 1993.2Office of the Law Revision Counsel. 26 USC Chapter 32 – Manufacturers Excise Taxes
- Air travel. A 7.5% tax applies to domestic airfare, plus a $5.30 per-segment fee for 2026. Both appear as line items on your ticket.3IRS.gov. Instructions for Form 720
- Telephone service. A 3% federal excise tax applies to local telephone service.3IRS.gov. Instructions for Form 720
- Alcohol. Federal excise taxes on beer, wine, and spirits vary by type and volume, with distilled spirits carrying the highest per-unit rate.
Chapter 32 of the Internal Revenue Code also imposes manufacturer-level excise taxes on tires, sport fishing equipment, recreational gear, coal, and vaccines. A 10% tax applies to sport fishing equipment, and tire taxes are calculated by weight.2Office of the Law Revision Counsel. 26 USC Chapter 32 – Manufacturers Excise Taxes
Hotels and Short-Term Lodging
Short-term lodging is taxable nearly everywhere, and the rates add up fast. Hotels, motels, vacation rentals, and similar accommodations are subject to both general sales tax and, in most places, a separate lodging or occupancy tax. Combined state-level rates typically range from about 2% to 15%, and many cities and counties stack additional local taxes on top. The “taxes and fees” line on a hotel receipt often represents 10% to 20% of the room rate once everything is combined.
These taxes increasingly apply to short-term rental platforms too. When you book a vacation rental through an online marketplace, the platform usually collects and remits lodging taxes on your behalf, just as a hotel would.
Use Tax: When You Owe Tax Nobody Charged You
Here is the one most people don’t know about. If you buy something taxable and the seller doesn’t charge you sales tax, either because they are located out of state and don’t collect it or because you bought the item abroad, you legally owe what is called a “use tax” to your home state. The rate is identical to your state’s sales tax rate. Every state that imposes a sales tax also imposes a corresponding use tax.
In practice, this comes up most often with online purchases, out-of-state buying trips, and international orders. Drive to a no-sales-tax state, buy furniture, and bring it home, and you technically owe use tax on that purchase. The same goes for items ordered from overseas sellers who don’t collect U.S. tax.
For years, enforcement was nearly impossible and compliance was low. That changed after the Supreme Court’s 2018 decision in South Dakota v. Wayfair, which allowed states to require out-of-state sellers to collect sales tax even without a physical presence in the state.4Supreme Court of the United States. South Dakota v. Wayfair, Inc., No. 17-494 The typical threshold is $100,000 in annual sales or 200 transactions in the state, though some states set higher bars. All 45 sales-tax states plus D.C. now have economic nexus laws on the books, and major online marketplaces are required to collect and remit tax on behalf of their third-party sellers in most states.
Most online purchases now have tax collected automatically. Gaps remain with smaller sellers, peer-to-peer transactions, and cross-border purchases. If a seller didn’t charge tax, your state expects you to self-report the use tax, usually on your annual income tax return.
Sales Tax Holidays
About 18 states offer temporary sales tax holidays each year, typically in late summer before the school year starts. During these periods, certain categories of goods are completely exempt from state sales tax for a few days.
The most common exempt categories are back-to-school items: clothing (often capped at $100 per item), school supplies, and computers or tablets, with caps sometimes reaching $1,500. Some states run separate holidays for energy-efficient appliances, emergency preparedness supplies like generators and batteries, or hunting and outdoor equipment.
The savings are real but modest. Skipping 4% to 8% on qualifying items matters most on bigger purchases like laptops. The catch: price caps apply per item, not per transaction, and items above the cap are taxed at the full rate on the entire price, not just the amount over the cap. Check your state’s specific dates and limits before planning a shopping trip around a holiday.