Sales tax is a consumption tax that state and local governments add to the price of most goods, and some services, at the moment you pay. The seller calculates it as a percentage of the purchase price, collects it from you at checkout, and later sends it to the taxing authority. There is no federal sales tax in the United States; the power to impose one belongs to states, counties, cities, and special districts. Forty-five states and the District of Columbia levy some form of it, with combined state and local rates ranging from zero to over 10%, and a national population-weighted average combined rate of 7.53% as of January 2026.1Tax Foundation. State and Local Sales Tax Rates, 2026
How the Charge Is Calculated
The math is simple. Buy a $50 pair of shoes in a place with a 7% combined rate and you pay $3.50 in tax, for a total of $53.50. The retailer adds that line to your receipt, keeps the money separate, and remits it to the state on a filing schedule the state assigns. Unlike income tax, which targets what you earn, sales tax only touches what you spend.
You are the one paying, but legally the seller is the one on the hook for getting the right amount to the government. Many states treat collected sales tax as trust fund money, held by the business on behalf of the state until the filing deadline.
Why the Rate on Your Receipt Varies
The percentage you see is almost never a single tax. It’s a stack: a base state rate, often a county increment, sometimes a city rate, and sometimes a charge for a special district like a transit authority or stadium fund. Two stores ten miles apart can quote different totals for the same item because they sit under different combinations of these layers. Alabama’s state rate is 4%, for example, but combined rates in some municipalities reach 11%.1Tax Foundation. State and Local Sales Tax Rates, 2026
As of 2026, the five states with the highest average combined rates are Louisiana (10.11%), Tennessee (9.61%), Washington (9.51%), Arkansas (9.46%), and Alabama (9.46%).1Tax Foundation. State and Local Sales Tax Rates, 2026 Five states charge no state-level sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Local jurisdictions in Alaska and Montana can still impose their own, so a “no sales tax” state does not guarantee a tax-free receipt.
Which location’s rate applies depends on sourcing rules. Most states use destination-based sourcing, meaning the rate follows the buyer: order something online and you pay the rate where the package arrives, not where the warehouse sits. About a dozen states use origin-based sourcing for in-state sales, where the seller’s location sets the rate. For interstate sales, even origin-based states generally switch to destination rules.
What Gets Taxed and What Doesn’t
Sales tax typically applies to tangible personal property, meaning physical items you can carry out of a store or have delivered. Electronics, furniture, tools, and clothing usually fall inside the base. Services are treated inconsistently: some states tax a wide range of them, from haircuts to accounting, while others tax very few.
Most states carve out exemptions for essentials. Prescription medications are exempt in nearly every state with a sales tax. Unprepared groceries get favorable treatment in a majority of states, through either full exemption or a reduced rate, though several states still tax food at the standard rate. Clothing is fully exempt in a smaller group of states. These exemptions exist because sales tax is regressive by nature: everyone pays the same percentage regardless of income, so the same rate takes a bigger bite out of a smaller paycheck.
Digital Goods and Software
The old assumption that digital purchases are tax-free has largely disappeared. Most states now tax digital downloads such as music, e-books, and software in some form. Cloud-based software subscriptions are taxable in a growing number of states, though several large states, including California and Florida, still exempt them.
Resale and Nonprofit Exemptions
Businesses buying inventory for resale don’t pay sales tax on those purchases. They give the supplier a resale certificate, and the tax is collected at the eventual sale to the end consumer. Using a resale certificate to buy items for personal use is a common audit trigger and can bring penalties on top of the back taxes.
Certain organizations are also exempt from paying sales tax on their own purchases: federal and state government agencies, qualifying 501(c)(3) charities, nonprofit hospitals, schools, and religious organizations. The specifics vary by state, and most require the exempt buyer to present documentation at the point of sale.
Sales Tax on Online Purchases
Before 2018, online retailers only had to collect sales tax in states where they had a physical presence such as a warehouse or office. That changed with the Supreme Court’s decision in South Dakota v. Wayfair, Inc., which ruled that states could require sales tax collection from out-of-state sellers based on economic activity alone.2Supreme Court of the United States. South Dakota v. Wayfair, Inc. The South Dakota law at issue set the threshold at $100,000 in annual sales or 200 separate transactions delivered into the state.
Every state with a sales tax has since adopted its own economic nexus threshold. The $100,000 figure is the most common, though some states set it higher: California’s threshold is $500,000, and Alabama’s is $250,000. Several states have dropped the transaction-count prong, making revenue the sole trigger.3Streamlined Sales Tax. Remote Seller State Guidance For a shopper, the practical effect is straightforward: you’ll see sales tax on almost every online purchase now, whatever the seller’s location.
Marketplace facilitator laws add another layer. If you buy from a third-party seller on Amazon, eBay, Etsy, or a similar platform, the platform itself collects and remits the tax in nearly every sales tax state. That’s why a small Etsy shop based in Oregon still charges tax on your order when you live in Texas.
Use Tax
Use tax is the counterpart to sales tax. It applies when you buy something taxable but the seller doesn’t collect the tax, and you then store, use, or consume the item in a state that would have taxed the purchase. The most common scenario is buying from an out-of-state seller who lacks nexus in your state, or buying from a private party. The rate matches your local sales tax rate, and you’re technically supposed to report and pay it yourself, usually on your state income tax return.
Compliance among individual consumers is extremely low, which is one reason states pushed so hard for economic nexus and marketplace facilitator laws. Those laws moved the collection burden back onto sellers and platforms, so use tax is now largely a concern for businesses buying equipment or supplies from out-of-state vendors without paying sales tax up front.
Where the Money Goes
Sales tax revenue funds state and local government budgets. Public school districts draw on it for teacher salaries, facilities, and supplies. Road maintenance, bridge repairs, and public safety departments including police and fire services also depend heavily on these collections. Across all 45 states that impose a sales tax, the revenue accounts for roughly a third of total state tax collections on average, and it carries even more weight in the handful of states that don’t levy a personal income tax. The money usually lands in a state’s general fund, with some portions earmarked for specific purposes like local transportation or public health.