Sales tax is a consumption tax imposed by state and local governments on the sale of goods and services, typically added at the point of purchase.
How Sales Tax Works
When you buy a taxable item, the retailer adds the applicable state and local tax rate to the price. Rates vary significantly by location — from 0% in states like Oregon and Montana to over 10% in parts of Louisiana, Tennessee, and Arkansas when combining state and local rates.
Five states have no sales tax at all: Oregon, Montana, New Hampshire, Delaware, and Alaska (though Alaska allows local jurisdictions to impose their own).
What Is Taxable
Rules vary by state. Most states tax tangible goods but exempt groceries, prescription medications, and clothing (in some states). Services, digital products, and prepared food have varying treatment across jurisdictions.
Real-World Example
You buy a $1,200 laptop in Texas (6.25% state + 2% local = 8.25% total). Sales tax: $1,200 × 0.0825 = $99.00. Total cost: $1,299.00. The same laptop in Oregon would cost $1,200 — a $99 savings.
Frequently Asked Questions
Which states have no sales tax?
Oregon, Montana, New Hampshire, Delaware, and Alaska have no statewide sales tax. However, Alaska allows local municipalities to charge their own sales tax.
Is sales tax included in the listed price?
In the U.S., sales tax is almost always added at checkout — it is not included in the shelf price. This differs from many other countries (like those in Europe with VAT) where tax is included in the displayed price.
Do I pay sales tax on online purchases?
Yes. Since the 2018 Supreme Court ruling (South Dakota v. Wayfair), online retailers must collect sales tax in states where they have a significant business presence, which now covers most major retailers.