How to Calculate Sales Tax: State-by-State Guide
Learn how sales tax works, how to calculate it, and which states have the highest and lowest rates. Includes exemptions, online sales tax rules, and a free calculator.
How Sales Tax Is Calculated
Sales tax is calculated by multiplying the purchase price by the tax rate. For a $50 item in a jurisdiction with 8.25% sales tax: $50 × 0.0825 = $4.13 in tax, making the total $54.13. The complexity arises because sales tax rates vary by state, county, and city. Your total rate is the sum of state, county, and municipal rates — a purchase in Chicago, for example, faces the 6.25% Illinois state rate plus Cook County and city rates, totaling 10.25%. Always check your local combined rate for accurate calculations.
State Sales Tax Rates and Variations
Five states have no sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Among states that do levy sales tax, rates range from 2.9% (Colorado) to 7.25% (California). However, the state rate alone doesn't tell the full story — local additions can push the combined rate much higher. Tennessee has a 7% state rate but combined rates reaching 9.75%. The highest combined rates in the US exceed 10% in parts of Louisiana, Tennessee, and Washington state. For large purchases, shopping in a lower-tax jurisdiction can save hundreds of dollars.
Common Sales Tax Exemptions
Most states exempt certain categories from sales tax. Groceries (unprepared food) are exempt in about 30 states. Prescription medications are exempt in all states that have sales tax. Clothing is exempt in a handful of states including Pennsylvania, New Jersey, and New York (for items under $110). Many states hold annual tax-free weekends or back-to-school holidays where clothing, school supplies, and computers are temporarily exempt. Business-to-business purchases for resale are also exempt when the buyer provides a resale certificate.
Online Sales Tax Rules After Wayfair
Since the 2018 Supreme Court ruling in South Dakota v. Wayfair, states can require online retailers to collect sales tax even without a physical presence in the state. Most states now require collection once a seller exceeds $100,000 in sales or 200 transactions in the state. This means online shopping no longer provides a tax advantage in most cases. Major platforms like Amazon, eBay, and Etsy collect and remit sales tax automatically. If you purchase from a small out-of-state seller who doesn't collect tax, you technically owe use tax on your state tax return.
Sales Tax Tips for Businesses and Consumers
For businesses: register for a sales tax permit before your first sale, file returns on the schedule assigned by your state (monthly, quarterly, or annually based on volume), and keep detailed records of tax-exempt sales. Many states offer early filing discounts of 1-3%. For consumers: factor sales tax into major purchase budgets, take advantage of tax-free shopping events, and consider purchasing large items (cars, appliances, electronics) in lower-tax jurisdictions if the savings justify the trip. Some states, like Oregon, draw significant shopping tourism from neighboring higher-tax states.
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Frequently Asked Questions
Which states have no sales tax?
Five US states have no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local municipalities to levy their own sales tax (some areas charge up to 7%), so it's not entirely tax-free. Delaware, Montana, New Hampshire, and Oregon have no sales tax at any level.
Do I have to pay sales tax on online purchases?
In most cases, yes. Since the 2018 Wayfair ruling, most states require online retailers to collect sales tax. Major platforms (Amazon, Walmart, eBay) collect automatically. If a smaller retailer doesn't collect tax, you are legally required to report and pay use tax on your state income tax return, though enforcement of individual use tax is minimal.
Is sales tax included in the listed price?
In the US, sales tax is almost never included in the displayed price — it's added at checkout. This differs from most other countries (UK, EU, Australia, Canada) where the displayed price includes all taxes (VAT/GST). When budgeting for purchases in the US, always factor in your local sales tax rate on top of the sticker price.