Sales tax is a percentage of the purchase price that you add at checkout

Sales tax is calculated by taking the price of what you buy and multiplying it by the tax rate where you are shopping. If an item costs $100 and the sales tax rate is 7%, you multiply $100 by 0.07 to get $7 in tax. Your total cost is $107. The tax rate varies by state and sometimes by county or city, so the same item costs different amounts depending on where you buy it.

Unlike income tax, which is withheld from your paycheck throughout the year, sales tax is collected at the point of sale — when you pay for something. The retailer collects it and sends it to the state tax authority. You do not file a form to pay sales tax; it is added to your bill automatically at checkout, whether you are shopping in a store or online.

Key Takeaways

  • Sales tax is calculated by multiplying the item price by the tax rate as a decimal (a 7% rate becomes 0.07).
  • Tax rates vary by state and sometimes by county or city within a state, ranging from 0% to over 10% depending on location.
  • Some items are exempt from sales tax in most states, including groceries, prescription medications, and medical equipment.
  • Online purchases are subject to sales tax in your state if the seller has a physical presence there or meets certain sales thresholds.

How tax rates differ by location

Five states have no sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon. Every other state charges sales tax, but the rate is not uniform across the country. State rates range from 2.9% in Colorado to 7.25% in California, though many states fall between 5% and 7%.

Within a state, local taxes can add to the state rate. A city or county may add 1% to 3% on top of the state rate. For example, Tennessee has a state rate of 9.55%, but some counties add local tax that brings the total to over 10%. You need to know the combined rate where you are shopping, not just the state rate. Most retailers' point-of-sale systems calculate this automatically, but if you are budgeting or comparing prices across locations, you need to account for the local rate too.

The basic formula and worked examples

The formula is straightforward: Price × Tax Rate (as a decimal) = Sales Tax Amount. Then add the tax to the price to get your total.

If you buy a shirt for $50 in a state with a 6% sales tax rate, the calculation is $50 × 0.06 = $3 in tax. Your total is $50 + $3 = $53. If you buy groceries for $75 in a state where groceries are not taxed, the tax is $0 and your total is $75. If you buy a phone for $800 in a location with a combined state and local rate of 8.5%, the calculation is $800 × 0.085 = $68 in tax, for a total of $868.

When you are shopping and want to estimate the total before you reach the register, multiply the subtotal by the tax rate. If your cart shows $200 and the rate is 7%, multiply $200 by 0.07 to get $14 in tax, making your estimated total $214. This works the same way whether you are buying one item or many.

What items are typically exempt from sales tax

Most states do not charge sales tax on groceries — items like bread, milk, vegetables, and meat. However, prepared foods, candy, and soft drinks are often taxed even in states that exempt groceries. The definition of "grocery" varies by state, so a rotisserie chicken might be taxed in one state and exempt in another.

Prescription medications are exempt from sales tax in all 50 states. Over-the-counter medications like aspirin or cold medicine are taxed in most states, though some exempt them. Medical equipment prescribed by a doctor — such as wheelchairs, hearing aids, or diabetic supplies — is usually exempt, but the rules depend on your state and sometimes require a doctor's note.

Clothing is exempt in several states, including New York, Pennsylvania, and New Jersey, but taxed in most others. Some states that tax clothing make exceptions for items under a certain price. Services like haircuts, repairs, and professional fees are generally not subject to sales tax, though this varies. If you are unsure whether something is taxed, ask the cashier or check your state's tax authority website.

How sales tax works on online purchases

For many years, online retailers did not charge sales tax unless they had a physical store in your state. That changed in 2018 when the U.S. Supreme Court ruled that states could require online sellers to collect sales tax even without a physical location. Now most states require online retailers to charge sales tax based on where the item is being shipped.

If you order something online and it ships to your address, the retailer should charge the sales tax rate for your state and locality. Large online retailers like Amazon collect and remit sales tax in all states that have it. Smaller sellers may not, depending on their sales volume and the state's rules. If you receive an item without sales tax charged and you live in a state with sales tax, you may technically owe "use tax" on that purchase — a tax on items you buy out of state for use in your state. However, use tax is rarely enforced for individual purchases.

Finding your local sales tax rate

Your state's Department of Revenue or Tax Department website lists the current sales tax rate for your state and often for specific cities and counties. Search "[your state] sales tax rate" to find the official source. Many states also provide a rate lookup tool where you enter your zip code and see the combined state and local rate.

Retailers' websites often show the tax rate at checkout before you complete your purchase. If you are shopping in a store, the receipt shows the tax amount and rate. If you need the rate for budgeting or comparison shopping before you buy, the state tax website is the most reliable source because local rates change occasionally and the official site is updated first.

Frequently Asked Questions

Is sales tax included in the price shown on the shelf?

No. Shelf prices in the United States are almost always before tax. The price tag shows what the item costs before sales tax is added. At checkout, the tax is calculated and added to your bill. A few states require prices to include tax, but this is rare.

Do I pay sales tax on items I buy with a gift card?

Yes. Sales tax is based on the purchase price, not the payment method. Whether you pay with cash, a credit card, or a gift card, the tax is calculated the same way and added to your total.

What is use tax and do I have to pay it?

Use tax is a tax on items you buy outside your state for use in your state, when no sales tax was charged. It is the same rate as your state's sales tax. Most states have use tax laws, but they are rarely enforced for individual consumers. Businesses are more likely to owe use tax on bulk purchases.

Can I get a refund of sales tax I already paid?

Generally no. Sales tax is final once you complete the purchase. If you return an item and get a refund, the refund includes the tax you paid, so you are not out that money. Some states offer sales tax refunds for specific items like energy-efficient appliances, but these are rare and require a separate claim.

Why do some states have no sales tax?

States without sales tax — Alaska, Delaware, Montana, New Hampshire, and Oregon — generate revenue through other means, such as income tax, property tax, or business taxes. The choice is a state policy decision made by each state's legislature.