US Sales Tax Explained: State and Local Rates, Exemptions and Online Purchases

How a combined rate is built

A combined rate has a statewide base plus local add-ons. Colorado shows the gap clearly: its state rate is only 2.9%, the lowest of any state that levies one, but local taxes bring the population-weighted average to 7.89% (Tax Foundation, as of 1 January 2026). California has the highest statewide rate at 7.25%, while Louisiana has the highest average combined rate, at 10.11%.

Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska still lets its towns levy local sales taxes, so buyers there are not always tax-free.

Worked examples

• Adding tax: a $1,200 laptop in Chicago, where the combined rate is 10.25%, carries $123.00 of tax for a total of $1,323.00.
• Removing tax: a New York City receipt total of $108.88 at 8.875% means the pre-tax price was $108.88 ÷ 1.08875 = $100.00.
• The common mistake: subtracting 8.875% of the total gives $99.22, because the tax was calculated on the price, not on the total.

The sales tax calculator does both directions and lists every state’s base rate.

What is taxed — and what is not

• Groceries are exempt or taxed at a reduced rate in most states, though local taxes may still apply.
• Prescription drugs are exempt almost everywhere.
• Clothing is exempt in a few states, sometimes only below a price threshold.
• Services and digital goods vary widely: some states tax streaming, software or repairs, others do not.
• Sales-tax holidays: several states suspend tax on school supplies, clothing or energy-efficient appliances for a few days a year.

Online purchases since 2018

Before 2018, online sellers generally collected tax only in states where they had a physical presence. The Supreme Court’s South Dakota v. Wayfair decision allowed states to require collection once a remote seller passes an “economic nexus” threshold — most commonly $100,000 of sales into the state in a year. Marketplaces such as Amazon and Etsy now collect on behalf of their third-party sellers.

If a seller does not collect tax on something you use in a sales-tax state, you are generally expected to pay use tax at the same rate, often through your state income tax return. Businesses are audited for it far more often than individuals, but the obligation applies to both.

Tips for small businesses

• Charge the rate for the delivery address in destination-based states — most of them. A few states use the seller’s location for in-state sales.
• Register before you collect: collecting tax without a permit is itself a problem.
• Keep exemption certificates from resellers and non-profits; without them you can owe the uncollected tax.
• Remember that collected tax is not revenue. Set it aside until it is remitted.

Rates change often — local rates can change every quarter — so confirm exact rates with your state revenue department. This guide is general information, not tax advice.

Sales tax vs VAT and GST

Most other countries use a value-added tax (VAT) or goods and services tax (GST) instead. VAT is collected at every stage of production, with businesses reclaiming the tax they paid on inputs, and it is usually included in the shelf price. US sales tax is collected only once, at the final sale, and is added at the register.

• EU standard VAT rates range from 17% in Luxembourg to 27% in Hungary.
• The UK standard rate is 20%, with reduced and zero rates for some goods.
• Canada combines a 5% federal GST with provincial sales taxes, or a single harmonised sales tax (HST) in some provinces.
• Visitors can often reclaim VAT on goods exported in their luggage; US sales tax generally cannot be refunded to tourists.

Rounding and receipts

Tax is calculated on the taxable total of a transaction in most states and rounded to the nearest cent, with half a cent rounding up. Because some items may be exempt and others taxed at special rates, a receipt can show several tax lines. If a total looks a few cents off from your own calculation, rounding per line versus per receipt is usually the reason.

State highlights (as of 1 January 2026)

• Highest average combined rates: Louisiana 10.11%, Tennessee 9.61%, Washington 9.51%, Arkansas 9.46% and Alabama 9.46%.
• Highest statewide base rate: California at 7.25%, which includes a mandatory 1.25% local portion levied statewide.
• Lowest statewide rate among states that have one: Colorado at 2.9% — though local rates bring its average combined rate to 7.89%.
• Hawaii’s 4% general excise tax is levied on businesses and applies to a very broad base, including many services; businesses commonly pass it on at about 4.5%.
• Delaware, Montana, New Hampshire and Oregon have no general sales tax at state or local level.

Each state’s page in the sales tax calculator lists its base rate, average combined rate and notable rules.

Marketplace facilitator laws

Every state with a sales tax now requires large online marketplaces to collect and remit tax for third-party sellers. If you sell only through such a marketplace, it handles collection on those sales — but you may still need to register in states where you also sell directly, and some states count marketplace sales toward your own economic-nexus threshold.

Is shipping taxable?

It depends on the state. Some states tax delivery charges whenever the items shipped are taxable; others exempt shipping if it is listed separately on the invoice; a few exempt it entirely. Handling fees are taxed more often than pure shipping costs. Online checkouts apply the rules of the delivery address, so the same order can show different tax in different states.