Complete Guide to Sales Tax
Everything you need to know about US sales tax: how it works, what you pay, and how to stay compliant across all 50 states.
What is Sales Tax?
Sales tax is a consumption tax imposed by state and local governments on the sale of goods and services in the United States. Unlike value-added tax (VAT) or goods and services tax (GST) used in other countries, US sales tax is collected only at the point of final sale to the consumer.
Key Characteristics of US Sales Tax:
- • Single-stage tax: Applied only at the final retail sale, not throughout the supply chain
- • Consumer pays: The end customer bears the tax burden, not the business
- • Seller collects: Businesses collect the tax and remit it to tax authorities
- • State-controlled: No federal sales tax; each state sets its own rules and rates
Sales Tax vs Other Taxes
| Tax Type | Collection Point | Who Pays |
|---|---|---|
| Sales Tax (US) | Final retail sale only | End consumer |
| VAT/GST | Every stage of supply chain | End consumer (with input credits) |
| Use Tax | Out-of-state purchases | Buyer (self-reported) |
The most important difference: sales tax is applied only once at the final sale, whereas VAT is collected at multiple stages with businesses claiming input tax credits. This makes sales tax simpler in concept but complex in practice due to varying state and local rules.
Sales Tax Calculator
Calculate sales tax for any purchase amount in any US state. Select your state below to get started with accurate, up-to-date 2025 rates.
Select your state to calculate sales tax:
View All 50 States →How to Calculate Sales Tax
Calculating sales tax is straightforward: multiply the purchase price by your tax rate. However, getting the correct tax rate is more complex than you might think.
Basic Formula
Step-by-Step Example
⚠️ Why ZIP Codes Aren't Enough
The United States has over 12,000 sales tax jurisdictions. A single ZIP code can span multiple cities, counties, or special tax districts—each with different rates.
Example: In Denver, Colorado, neighbors across the street can pay different tax rates depending on which side of a district boundary they're on. Always use address-based geolocation for accurate rates.
Use our state calculators for accurate, up-to-date rates, or try our reverse calculator if you need to work backwards from a total.
Reverse Sales Tax Calculator
Need to find the pre-tax price from a total amount? Our reverse sales tax calculator works backwards to show you exactly what the item cost before tax was added.
The Reverse Formula
Example:
When You Need Reverse Calculation
Vehicle & Car Sales Tax
Buying a car? Sales tax on vehicle purchases works differently than regular retail sales tax, with special rules for trade-ins, gifted vehicles, and state-specific policies.
How Car Sales Tax Works
Calculate on Purchase Price
Sales tax is calculated based on the vehicle's purchase price, whether new or used. Most states use the same sales tax rate as general retail purchases.
Trade-In Credit Reduces Taxable Amount
In most states, if you're trading in a vehicle, you only pay tax on the difference between the purchase price and trade-in value. This can save hundreds or even thousands of dollars.
Example: Buy a $30,000 car, trade-in worth $10,000 → Pay tax on only $20,000 (saves $600 at 6% tax rate)
Pay at DMV Registration
Car sales tax is typically paid when you register and title the vehicle at your state's DMV or motor vehicle agency, usually within 30 days of purchase.
No Sales Tax States
Five states don't charge sales tax on vehicles:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
Highest Car Sales Tax
Combined state + local rates:
- Oklahoma 11.5%
- Louisiana 11.45%
- Arkansas 11.25%
- California 7.25-10.75%
⚠️ 7 States Don't Offer Trade-In Credit
These states charge sales tax on the full purchase price, regardless of trade-in value:
Special Car Tax Scenarios
How Sales Tax Works in the United States
Federal vs State Control
Unlike most countries that have a national VAT or GST, the United States has no federal sales tax. Each state has complete sovereignty over its sales tax policy, creating a complex patchwork of rates and rules.
45 States + DC
Have sales tax with rates ranging from 2.9% to 7.25% at the state level
5 NOMAD States
Have no statewide sales tax
The NOMAD States (No Sales Tax)
*Alaska allows local jurisdictions to impose sales tax
The Three-Level Tax System
Most states layer taxes at three levels, creating the combined rate you actually pay:
1. State Tax
Set by state legislature. Example: California 7.25%
2. County Tax
Added by county government. Example: Los Angeles County +0.25%
3. City/Local Tax
Added by city or municipality. Example: Los Angeles City +1.5%
Example: Los Angeles, California
Current Tax Rates (2025)
Highest State-Only Rates
Highest Combined Rates (State + Local)
2025 Update
Louisiana's state rate increased from 4.45% to 5% on January 1, 2025, making it the state with the highest combined average rate at 10.11%.
Why ZIP Codes Aren't Enough
The United States has over 12,000 sales tax jurisdictions—far more granular than ZIP codes.
- A single ZIP code can span multiple cities, counties, and special tax districts
- Neighbors across the street may pay different rates depending on district boundaries
- Special districts (transit, tourism, infrastructure) add complexity
Solution: Always use address-based geolocation or our state calculators for accurate rates.
Sales Tax Nexus: Understanding Your Obligations
⚠️ Critical for Online Sellers & Remote Businesses
Nexus determines whether you must collect sales tax in a state. Get this wrong, and you could owe years of back taxes, penalties, and interest.
What is Nexus?
Nexus (from Latin "to bind") means you have a sufficient connection to a state that creates a legal obligation to collect and remit sales tax.
Before 2018, this only meant physical presence—an office, warehouse, or employees. After the landmark Wayfair decision, economic nexus changed everything.
The Wayfair Decision (2018)
States can require remote sellers (no physical presence) to collect sales tax based on economic activity alone.
Only collect tax where you have offices, warehouses, or employees
Collect tax in any state where you exceed sales/transaction thresholds
Impact: By 2020, all 45 states with sales tax had adopted economic nexus laws. Small online sellers went from 0-1 state compliance to potentially 20-30 states overnight.
Types of Nexus
1 Physical Nexus
Traditional "brick-and-mortar" connection to a state:
Warning: In Texas, attending a trade show for even one day can trigger nexus!
2 Economic Nexus ⭐ Most Important
Based solely on sales volume or transaction count—no physical presence needed.
Common Thresholds
2025 Update: 15 states have eliminated the 200-transaction threshold, now using sales-only thresholds.
3. Affiliate Nexus
Marketing partners or affiliates driving sales on your behalf (e.g., New York: $10,000/year threshold)
4. Click-Through Nexus
Websites referring customers via commission-based arrangements or redirecting ad traffic
5. Trailing Nexus
Continues after you stop doing business (e.g., Washington requires 1 more year of compliance after closure)
Marketplace Facilitator Laws
As of 2025, all 45 states with sales tax have marketplace facilitator laws. These require platforms like Amazon, eBay, and Etsy to collect tax on behalf of third-party sellers.
Marketplace Collects for You
- ✅ Amazon FBA
- ✅ eBay
- ✅ Etsy
- ✅ Walmart Marketplace
YOU Must Collect
- ❌ Your Shopify store
- ❌ Your WooCommerce site
- ❌ Direct wholesale/B2B sales
- ❌ Custom websites
Important: Some states combine your marketplace sales + direct website sales to determine if you've exceeded economic nexus thresholds. Track all channels together!
How to Determine Your Nexus
Recommendation: If you're doing $500K+ in annual sales across multiple states, conduct an annual nexus study or consult with a sales tax professional. The cost of an audit far exceeds the cost of compliance.
What's Taxable? Product & Service Rules
Not everything you buy is subject to sales tax. Each state decides what's taxable and what's exempt, creating a complex patchwork of rules across the country.
Generally Taxable Items
Generally Exempt Items
Unprepared Food & Groceries
32 states exempt unprepared food and groceries from sales tax.
States that DO tax groceries:
Prescription Drugs & Medical Devices
Prescription drugs: Exempt in all states
Medical devices: Wheelchairs, prosthetics, hearing aids typically exempt
Manufacturing Equipment
Most states exempt manufacturing equipment to avoid tax pyramiding (taxing the same item multiple times as it moves through production).
Clothing: It's Complicated
Always Taxable
Most states including:
Always Exempt
Four states:
Price Thresholds
Exempt under certain amounts:
Software, SaaS & Digital Products (2025)
As of 2025, SaaS is taxable in 25 jurisdictions
This is rapidly evolving as states expand tax bases to capture the digital economy.
States That Tax SaaS:
Digital Products (eBooks, Music, Streaming)
Rules vary dramatically by state:
- • Some states tax as digital goods
- • Some states tax as services
- • Some states don't tax at all
- • Example: Netflix may be taxable in one state, exempt in another
Services: Generally NOT Taxable
Unlike tangible goods, most services are NOT subject to sales tax in most states. However, there are important exceptions.
States That Tax Many Services:
Exemption Certificates for Businesses
If you're buying inventory to resell or purchasing manufacturing inputs, you can avoid paying sales tax by providing a resale certificate or exemption certificate.
What They Cover:
- ✓ Resale certificates: Buying inventory to resell
- ✓ Wholesale purchases: B2B transactions
- ✓ Manufacturing inputs: Raw materials
Critical Rules:
- ⚠️ Must keep on file for 3-7 years
- ⚠️ Seller is liable without valid certificate
- ⚠️ Re-validate every 3-4 years
For Sellers: Without a valid exemption certificate, you're liable for the uncollected tax in an audit. Always obtain certificates BEFORE the sale.
Sales Tax for Online Sellers & E-Commerce
The 2018 Wayfair decision transformed online sales tax compliance. What was once simple (collect where you have a warehouse) became complex (collect in 20-30+ states based on sales volume).
Pre-2018 vs Post-2018: Everything Changed
❌ Before Wayfair (Pre-2018)
- • Only collect where you have physical presence
- • Office, warehouse, or employees = nexus
- • Selling $10M online from home office? Only collect in your home state
- • Simple compliance for most online sellers
✓ After Wayfair (2018+)
- • Collect based on economic nexus (sales volume)
- • Typical threshold: $100,000 in sales per state
- • Small sellers now face multi-state compliance
- • Complex compliance across 20-30 states
Impact: A home-based online seller doing $500K/year might now need to register, collect, file, and remit in 15-25 different states—each with different rates, rules, and filing frequencies.
Marketplace Facilitator Laws: The Good News
As of 2025, all 45 states with sales tax have marketplace facilitator laws. This means platforms handle tax collection for sales made through their marketplaces.
What This Means for You:
Direct-to-Consumer Website Sales
If you sell through your own website (Shopify, WooCommerce, BigCommerce, custom site), you're responsible for all sales tax compliance.
When You Must Collect:
⚠️ Multi-State Obligations Are Expensive
Technology Solutions:
These tools provide automated rate updates, address-based geolocation, and can handle filing/remittance.
Combined Marketplace + Website Sales
Critical: Some states combine ALL your sales
Some states add your Amazon sales + your website sales to determine if you've exceeded economic nexus thresholds.
Example Scenario:
Strategy: Track all sales channels together monthly. Some businesses create separate LLCs for marketplace vs direct sales to avoid this issue.
Drop Shipping & International Sellers
Drop Shipping: Who Collects Tax?
International Sellers (Selling INTO the US):
- • Same rules apply as US-based sellers
- • Must register in states where you have nexus
- • Consider US entity formation (LLC, Corporation)
- • Warning: Using FBA creates physical nexus in warehouse states!
Sales Tax by State: Complete Directory
Each state has its own sales tax rules, rates, and exemptions. Use our state-specific calculators for accurate, up-to-date information.
Most Popular State Calculators
Based on search volume - these states have the highest demand:
All 50 States + DC by Region
Northeast
Southeast
Midwest
Southwest
District of Columbia
The NOMAD States (No Sales Tax)
Five states have no statewide sales tax. Shopping in these states? You won't pay sales tax on most purchases.
Note: Alaska allows local jurisdictions to impose their own sales taxes, so some cities in Alaska do have sales tax.
History of Sales Tax in the United States
Early Years (1930s-1940s)
Mississippi becomes the first state to enact a modern retail sales tax during the Great Depression
West Virginia enacts the first free-standing sales tax as states desperately seek revenue
By the end of the 1940s, 30 states had adopted sales tax as a primary revenue source
Mid-Century Evolution (1950s-1990s)
The Wayfair Revolution (2018)
South Dakota v. Wayfair, Inc. overturns 50+ years of physical presence precedent. States can now require remote sellers to collect sales tax based on economic activity alone.
Impact: By 2020, all 45 sales tax states had adopted economic nexus laws. Estimated $13 billion in previously uncollected revenue.
Recent Developments (2020-2025)
Sales Tax Compliance for Businesses
Multi-state sales tax compliance is complex but manageable with the right process. Here's your step-by-step guide.
Determine Where You Have Nexus
- • Conduct annual nexus study if doing $500K+ in sales
- • Track sales by state monthly
- • Monitor economic nexus thresholds ($100K/$500K)
- • Document physical presence (employees, offices, inventory, trade shows)
Register for Sales Tax Permits
Apply with each state's revenue department:
- • Provide business info (EIN, entity type, products sold)
- • Processing time: 2-8 weeks typically
- • Cost: Free to $100 per state
- • Some states require bonds for out-of-state businesses
Collect Sales Tax
- • Use address-based geolocation (NOT ZIP codes)
- • Implement tax calculation software (Avalara, TaxJar, TaxCloud)
- • Separately state tax on invoices/receipts
- • Know if your state uses destination or origin sourcing
File Returns & Remit Tax
Filing Frequencies
Critical Rules
Maintain Records
Keep for 3-7 years (varies by state)
- • Sales receipts/invoices
- • Exemption certificates
- • Return confirmations
- • Payment records
⚠️ Common Compliance Pitfalls
Penalties: Late filing (5-25%), late payment (5-25% + 6-12% interest annually), fraud (25-50% + criminal prosecution). Average audit costs: $100,000 for mid-size businesses.
7 Common Sales Tax Mistakes & How to Avoid Them
Mistake #1: "I Don't Have Enough Sales"
Physical nexus triggers obligation at $1. One employee in a state = nexus. One day at a Texas trade show = nexus.
✓ Solution: Track ALL nexus types, not just sales.
Mistake #2: Using ZIP Codes for Rates
ZIP codes span multiple jurisdictions. Can be off by 2-4 percentage points.
✓ Solution: Use address-based geolocation.
Mistake #3: Ignoring Combined Sales
Some states ADD Amazon + website sales to determine thresholds.
✓ Solution: Track all channels together.
Mistake #4: Collecting But Not Remitting
This is FRAUD, not just non-compliance. States pursue criminally. Penalties 25-50%+.
✓ Solution: Never treat collected tax as your money.
Mistake #5: No Exemption Certificates
You're liable for uncollected tax without them. Must get BEFORE sale.
✓ Solution: Make it part of B2B sales process.
Mistake #6: Ignoring Trailing Nexus
Shut down warehouse but don't file final return? States come after you years later.
✓ Solution: Formally close permits.
Mistake #7: Marketplace Handles Everything?
Only for marketplace sales. YOUR website = your responsibility.
✓ Solution: Separate tracking and compliance.
Sales Tax Audits: What You Need to Know
What Triggers an Audit?
The Audit Process
Letter from state revenue department initiating audit
Sales records, invoices, exemption certificates
Auditor examines your records - field visit or remote
Findings and bill for unpaid taxes + penalties + interest
You can dispute the findings
Voluntary Disclosure Agreements (VDA)
If you discover old nexus, proactively approach the state BEFORE they audit you.
Benefits:
- • Reduces lookback to 3-4 years (vs 10)
- • Often waives penalties
- • Shows good faith
- • Anonymous until agreement
Cost Comparison:
- • VDA: Tax + interest only
- • Audit: Tax + interest + 25%+ penalty
- • Average savings: $50K-200K+
The Future of Sales Tax
Eliminating Transaction Thresholds
15 states have already eliminated the 200-transaction rule. Trend toward sales-only thresholds.
Prediction: All states drop transaction counts by 2027
Expanding to Digital Economy
25 states now tax SaaS. Maryland taxed digital advertising (2021). NFTs and crypto emerging.
Prediction: 40+ states taxing SaaS by 2027
Marketplace Expansion
May expand to payment processors, social media shopping (Instagram, TikTok Shop).
Prediction: More platforms become facilitators
Service Taxation
Maryland began taxing business services (2025). States broadening tax base as economy shifts to services.
Prediction: More states will follow
Federal Legislation?
Proposed bills for nationwide standards. Unlikely to pass - states resist federal control of sales tax.
Prediction: Remains state-controlled
Automation Becomes Essential
Complexity increasing. Manual compliance unsustainable for multi-state sellers.
Prediction: Tax software mandatory by 2028
Challenges Ahead
Frequently Asked Questions
1. How do I calculate sales tax backwards (reverse calculation)?
To find the pre-tax price from a total, divide total by (1 + tax rate). Example: $107.25 ÷ 1.0725 = $100. Use our Reverse Sales Tax Calculator for instant results.
2. How much is sales tax on a car?
Car sales tax varies by state from 0% (Alaska, Delaware, Montana, New Hampshire, Oregon) to 11.5% (Oklahoma combined rate). Most states apply their standard rate, but some have special vehicle taxes. Trade-ins typically reduce the taxable amount. See our car sales tax section for details.
3. What is New Jersey sales tax rate?
New Jersey has a 6.625% state sales tax with no local taxes, making it simple and consistent statewide. Calculate your NJ sales tax with our New Jersey Calculator.
4. How do I calculate NYC sales tax?
New York City has an 8.875% combined rate (4% state + 4.5% NYC + 0.375% MTA). Use our NYC Sales Tax Calculator for accurate calculations.
5. What states have no sales tax?
Five states have no sales tax (NOMAD states): New Hampshire, Oregon, Montana, Alaska, and Delaware. However, Alaska allows local jurisdictions to impose sales tax.
6. What is sales tax nexus?
Nexus is a sufficient connection to a state that creates an obligation to collect sales tax. This includes physical presence (office, warehouse, employees) or economic presence ($100,000+ in sales typically). Learn more in our nexus section.
7. Do online sellers have to collect sales tax?
Yes, if you have nexus in a state (physical or economic), you must collect sales tax. After the 2018 Wayfair decision, most states require collection if you exceed $100,000 in sales or 200 transactions. Marketplace sellers (Amazon, eBay) have the marketplace collect on their behalf.
8. Are groceries taxed?
Most states (32) exempt unprepared food/groceries. However, 13 states tax groceries including Alabama, Arkansas, Hawaii, Idaho, Illinois, Kansas, Mississippi, Missouri, Oklahoma, South Dakota, Tennessee, Utah, and Virginia (some at reduced rates).
9. How do I get a resale certificate?
Register for a sales tax permit in your state, then use your tax ID number to complete a resale certificate (Form ST-120 or equivalent). Present this to suppliers when buying inventory for resale to avoid paying sales tax on those purchases.
10. Can I use ZIP codes to determine tax rates?
No! ZIP codes often span multiple tax jurisdictions. A single ZIP code can have 3-5 different rates. Use address-based geolocation or tax calculation software for accuracy.
You're Now a Sales Tax Expert
Sales tax in the United States is complex—12,000+ jurisdictions, 45+ taxing states, and constantly changing rules. But understanding the fundamentals puts you ahead of most businesses and consumers.
Next Steps
Last updated: January 2025. Sales tax laws change frequently. While we strive for accuracy, always verify current rates and rules with your state's revenue department or a tax professional.