What is Sales Tax?

Sales tax is a consumption tax imposed by state and local governments on the sale of goods and services. When you make a purchase, the retailer collects the tax and remits it to the appropriate tax authority. Unlike VAT (Value Added Tax) used in many countries, US sales tax is only charged at the final point of sale to consumers.

How Sales Tax Rates are Determined

Sales tax rates in the United States consist of several components:

• State Rate: The base rate set by each state legislature
• County Rate: Additional tax imposed by counties
• City Rate: Municipal taxes added by cities and towns
• Special District Rate: Taxes for specific purposes like transportation or stadiums

States Without Sales Tax

Five states don't impose a statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local jurisdictions to levy their own sales taxes, so you may still pay sales tax in some Alaskan cities.

What's Taxable and What's Not?

Sales tax rules vary significantly by state. Common exemptions include:

• Groceries (exempt in most states)
• Prescription medications
• Clothing (exempt in some states like Pennsylvania and Minnesota)
• Services (many states only tax goods, not services)
• Business-to-business transactions

Online Sales Tax

Since the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require online retailers to collect sales tax even if they don't have a physical presence in the state. Most states now require online sellers to collect tax if they exceed certain sales thresholds (typically $100,000 in sales or 200 transactions annually).

Use Tax

If you purchase items without paying sales tax (such as from out-of-state sellers who don't collect tax), you're generally required to pay "use tax" directly to your state. This ensures that in-state and out-of-state purchases are taxed equally.

Sales Tax Holidays

Many states offer sales tax holidays, typically for back-to-school shopping or disaster preparedness. During these periods, certain items like clothing, school supplies, or emergency supplies are exempt from sales tax. Check your state's department of revenue website for specific dates and qualifying items.

Tips for Managing Sales Tax

• Always factor sales tax into your budget when making large purchases
• Consider driving to a neighboring state with lower rates for major purchases (but remember use tax obligations)
• Take advantage of sales tax holidays for planned purchases
• Keep receipts for business purchases as sales tax may be deductible
• Use this calculator to estimate costs before shopping