How Sales Tax Works in the US
Unlike the federal income tax system, sales tax is imposed at the state and local level. There’s no federal sales tax. Most states charge a base state rate, and cities, counties, and special districts can add their own rates on top — creating a combined rate that varies not just by state, but by ZIP code.
When you buy a taxable item, you pay the combined rate at the point of sale. The retailer collects the tax and remits it to the appropriate tax authorities.
States With No Sales Tax
Five states impose no state-level sales tax:
| State | Notes |
|---|---|
| Alaska | No state tax, but local jurisdictions can impose up to ~7.5% |
| Delaware | No sales tax at any level |
| Montana | No sales tax; some resort communities charge a local option |
| New Hampshire | No sales tax; 9% meals and rooms tax |
| Oregon | No sales tax at any level |
Alaska is unique — while there’s no state sales tax, over 100 local jurisdictions impose their own, with an average local rate of about 1.82%.
Highest and Lowest Combined Rates
States with the highest average combined rates
| State | State rate | Avg. local rate | Avg. combined rate |
|---|---|---|---|
| Tennessee | 7.00% | ~2.55% | ~9.55% |
| Louisiana | 4.45% | ~5.10% | ~9.55% |
| Arkansas | 6.50% | ~2.97% | ~9.47% |
| Washington | 6.50% | ~2.67% | ~9.17% |
| Alabama | 4.00% | ~5.14% | ~9.14% |
States with the lowest rates (that have sales tax)
| State | State rate | Avg. local rate | Avg. combined rate |
|---|---|---|---|
| Hawaii | 4.00% | ~0.44% | ~4.44% |
| Wyoming | 4.00% | ~1.36% | ~5.36% |
| Wisconsin | 5.00% | ~0.43% | ~5.43% |
| Maine | 5.50% | 0% | 5.50% |
| Virginia | 4.30% | ~0.43% | ~5.73% |
Note: Hawaii’s “sales tax” is technically a General Excise Tax (GET) applied to businesses, but it’s typically passed on to consumers.
Common Exemptions
Sales tax exemptions vary widely by state. Here are the most common categories:
Groceries
| Treatment | States |
|---|---|
| Fully exempt | Most states (CA, NY, TX, FL, PA, OH, and ~30 others) |
| Taxed at reduced rate | AR, IL, MO, TN, UT, VA |
| Fully taxed | AL, KS, MS, OK, SD |
Clothing
Most states tax clothing, but notable exceptions include:
- Pennsylvania: All clothing exempt
- New Jersey: All clothing exempt
- New York: Items under $110 exempt
- Minnesota: All clothing exempt
- Massachusetts: Items under $175 exempt
Other common exemptions
- Prescription drugs: Exempt in almost every state
- Medical devices: Exempt in most states
- Manufacturing equipment: Exempt or reduced in many states (economic development incentive)
Use Tax: The Hidden Obligation
If you buy a taxable item from an out-of-state retailer that doesn’t collect your state’s sales tax, you technically owe use tax at the same rate. This commonly applies to:
- Online purchases from sellers without nexus in your state
- Purchases made while traveling in a no-tax or lower-tax state
- Items bought from private sellers (e.g., Craigslist, Facebook Marketplace)
Most states include a use tax line on their income tax returns. Compliance is low among individuals, but states are increasingly enforcing use tax through data matching and audit programs.
Economic Nexus (Post-Wayfair)
The 2018 Supreme Court decision in South Dakota v. Wayfair changed everything for online sellers. States can now require out-of-state businesses to collect sales tax if they exceed economic nexus thresholds:
| Common threshold | Details |
|---|---|
| $100,000 in sales | Most common trigger — applies in ~40 states |
| 200 transactions | Some states use transaction count instead of (or in addition to) dollar amount |
| Both/either | Many states require meeting either threshold |
This means most major online retailers now collect sales tax in all taxing states. The practical impact: use tax obligations have decreased for consumers buying from large e-commerce platforms.
Worked Example
Sarah buys a $500 laptop in Nashville, Tennessee:
| Component | Rate | Tax |
|---|---|---|
| Tennessee state tax | 7.00% | $35.00 |
| Nashville local tax | 2.25% | $11.25 |
| Total sales tax | 9.25% | $46.25 |
| Total cost | $546.25 |
If Sarah bought the same laptop in Portland, Oregon: total cost = $500.00 (no sales tax).
The $46.25 difference illustrates why sales tax rates matter for major purchases — and why some consumers near state borders cross over for big-ticket items.
State and Local Tax (SALT) Deduction
If you itemize deductions on your federal return, you can deduct state and local taxes — but you must choose between sales tax and state income tax (you can’t deduct both). Under OBBBA (July 2025), the SALT cap is $40,000 ($20,000 MFS) for 2025 and later, up from the TCJA-era $10,000 cap, with a phaseout above $500,000 MAGI reverting toward a $10,000 floor.
Deducting sales tax is advantageous if you live in a state with no income tax (TX, FL, WA, NV, TN, etc.) or if your sales tax paid exceeds your state income tax.
The Bottom Line
- Sales tax ranges from 0% to over 9.5% depending on where you are
- Five states have no state sales tax, though Alaska allows local taxes
- Groceries are exempt in most states; clothing exemptions vary widely
- If a seller doesn’t charge you sales tax, you may owe use tax at the same rate
- Post-Wayfair, most online retailers now collect sales tax automatically
Use the sales tax calculator to find the exact combined rate for any US location and calculate the tax on your purchase.