Sales tax is a percentage added to the price of goods and some services when you buy them at the register
When you buy something in a store or online, the seller adds sales tax to your total. That tax goes to your state and sometimes your city or county. The percentage varies by location — your state sets a base rate, and your city or county may add more on top. You pay it at checkout, and the seller sends the collected money to the government.
Sales tax is different from income tax (which comes from your paycheck) or property tax (which you pay on real estate). It only applies when you make a purchase, and the rate depends on where you are when you buy, not where you live.
Key Takeaways
- Sales tax is a percentage added at checkout and varies by state, county, and sometimes city — there is no single national rate.
- Most physical goods are taxed, but groceries, prescription medications, and some clothing items are often exempt depending on your state.
- Online purchases are now taxed in most states, even if the seller is out of state, though some small sellers may not collect it.
- The seller collects the tax from you and sends it to the government — you do not file a separate form unless you run a business.
- Tax-exempt organizations like nonprofits and government agencies do not pay sales tax when they show proof of their status.
Why sales tax rates differ by location
Each state decides whether to have sales tax and at what rate. States without sales tax include Alaska, Delaware, Montana, New Hampshire, and Oregon. States with sales tax set a base rate that applies statewide, then allow cities and counties to add their own local tax on top.
For example, one state might have a 5% state rate, but a city within that state could add 2%, making the total 7% in that city only. The same item costs different amounts depending on which checkout you stand at. When you buy something, the tax rate that applies is the one where the transaction happens — the store's location, not yours.
What items are and are not taxed
Most physical goods are subject to sales tax: clothing, electronics, furniture, toys, and household items. However, many states exempt certain categories. Groceries and food for home consumption are exempt in most states, though prepared food and restaurant meals are usually taxed. Prescription medications are exempt in all states, but over-the-counter medicines and vitamins are often taxed.
Some states exempt clothing and shoes below a certain price point, or they exempt all clothing entirely. A few states do not tax services like haircuts or car repairs, while others do. The rules vary significantly by state, so what is taxed where you live may not be taxed somewhere else.
Digital products like e-books, software, and streaming subscriptions are increasingly taxed, though the rules are still evolving. Most states now tax these purchases, but some have exemptions or different rules depending on how the product is delivered.
How online purchases are taxed
Online retailers must now collect and send sales tax in most states, even if the company is located out of state. This changed in 2018 when the U.S. Supreme Court ruled that states could require online sellers to collect tax. Before that, many online purchases were not taxed because the seller had no physical location in the buyer's state.
Large online retailers like Amazon, Walmart, and Target collect sales tax based on your delivery address. Smaller sellers and marketplaces may have different rules — some collect tax, and some do not, depending on their size and the state's threshold. When you check out online, the tax should appear before you complete the purchase, just as it would in a physical store.
If you buy from a very small seller or a private individual through a marketplace, tax may not be collected. You are still legally responsible for paying tax on those purchases in some states, though enforcement is minimal for individual buyers.
Tax-exempt purchases and organizations
Certain organizations do not pay sales tax when they make purchases. Nonprofits, government agencies, schools, and religious institutions can usually buy items tax-free by showing a tax-exempt certificate or ID number at checkout or when ordering. The seller verifies the organization's status and does not charge tax.
As an individual, you cannot claim tax-exempt status for personal purchases. Tax-exempt status is only for organizations that meet specific legal requirements. If you work for a tax-exempt organization, your personal purchases are still taxed — only the organization's purchases for its operations are exempt.
What happens if you overpay or underpay sales tax
As a consumer, you do not file taxes on sales tax you paid — the seller handles that. If a store charges you the wrong amount, you can ask for a correction at that moment or contact the store later. Most stores will refund the difference if you catch an error.
If you buy something and later return it, the store refunds the full amount including tax. Some stores may issue a store credit instead of a refund, in which case you do not get the tax back unless you use the credit to buy something else.
If you run a business and collect sales tax from customers, you must file tax returns with your state and send the collected money on a schedule set by your state — usually monthly or quarterly. That is a different process from what consumers do.
How to find the sales tax rate where you shop
Your state's Department of Revenue or Department of Taxation website lists the current sales tax rate for your area. You can search by zip code or city to find the exact rate that applies. Many tax calculators online let you enter a location and see the combined state and local rate.
When you shop online, the retailer calculates tax based on your shipping address, so you do not need to look it up yourself. In a physical store, the register automatically applies the local rate. If you are shopping in a different city or state, the rate at that location's register is what you pay.
Frequently Asked Questions
Do I have to pay sales tax on everything I buy?
No. Groceries, prescription medications, and some clothing are exempt in most states. A few states have no sales tax at all. The rules vary by state and sometimes by city, so what is taxed depends on where you live and what you are buying.
Why is the total price at checkout different from the price on the shelf?
The shelf price does not include sales tax. The tax is added at checkout based on your location. This is why the same item costs different amounts in different cities or states — the tax rate changes.
Do I pay sales tax when I buy something online from another state?
Yes, in most cases. Online retailers now collect sales tax based on your delivery address, even if the company is located out of state. The tax rate that applies is the one where the item is being shipped, not where the seller is.
Can I get a refund of sales tax I already paid?
If you return an item, the store refunds the tax along with the purchase price. If you paid tax on something by mistake, contact the store for a correction. As a consumer, you do not file for tax refunds — the seller handles tax collection and payment to the government.
What is a sales tax holiday?
Some states hold periods, usually a few days, when certain items are not taxed. These are most common for back-to-school shopping or emergency preparedness items. The dates and items covered vary by state, so check your state's Department of Revenue website if you think one is coming up.