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Sales Tax

Tax

US Retail Sales Tax

A US state or local tax added to the sale price of goods and services at the point of purchase, collected by the retailer and remitted to the government.

Definition

Sales tax is a consumption tax imposed by US state and local governments on the retail sale of goods and certain services, collected by the seller at the point of purchase and remitted to the government. Unlike VAT — which is collected at every stage of the supply chain — sales tax is a single-stage tax applied only to the final sale to the end consumer.

Sales tax rates and rules vary dramatically across the US: 45 states plus Washington D.C. impose some form of sales tax, with combined state and local rates ranging from 0% to over 12%. There is no federal sales tax in the US.

India's equivalent is GST — a multi-stage consumption tax that replaced state-level VAT in 2017.

Formula

Tax Amount = Retail Price × Tax Rate

Total Price = Retail Price × (1 + Tax Rate)

Pre-tax Price from Total = Total Price ÷ (1 + Tax Rate)

Worked Example

You buy a laptop for $1,200 in Los Angeles, California. The combined sales tax rate is 10.25%.

  • Tax Amount = $1,200 × 0.1025 = $123
  • Total Paid = $1,200 + $123 = $1,323

To reverse-calculate: if you paid $1,323 total and want to find the pre-tax price:

  • Pre-tax = $1,323 ÷ 1.1025 = $1,200

Use the sales tax calculator to quickly compute totals for any state.

Key Things to Know

  • Destination vs origin sourcing: For online sales, most states use destination-based sourcing — the rate is determined by the buyer's location. A few states (Arizona, Mississippi, Missouri) use origin-based sourcing, applying the seller's location rate.
  • Tax on tax (stacking) doesn't apply: Sales tax is calculated on the retail price before any other taxes. It is not charged on top of other sales taxes.
  • Use tax: If you buy goods from an out-of-state seller who does not collect your state's sales tax, you technically owe a use tax to your state at the same rate. This is rarely enforced for individuals but matters for businesses.
  • Nexus: A business must collect sales tax in states where it has a significant presence (physical or economic nexus). After Wayfair (2018), economic nexus typically triggers at $100,000 in sales or 200 transactions in a state.
  • How it compares globally: The US average combined rate (~7–10%) is much lower than European VAT rates (19–25%). However, because the US has no federal VAT, state and local governments rely more heavily on sales tax and property tax for revenue.

Related Calculators

Sales Tax Calculator →Calculate US sales tax on any purchase by entering the state and local tax rates. Instantly see the tax amount, total price, and combined effective rate for any state or county.
VAT Calculator →Add VAT to a net price or remove VAT from a gross price instantly. Supports any VAT rate. Free online VAT calculator for UK, EU, and global use.
GST Calculator →Calculate GST on any amount instantly. Supports 5%, 12%, 18%, and 28% GST slabs. Shows CGST, SGST breakdown and total inclusive price.

Related Terms

VATValue Added TaxGSTGoods and Services Tax

Frequently Asked Questions

Five states have no state-level sales tax: Oregon, Montana, New Hampshire, Delaware, and Alaska. Alaska allows localities to impose their own sales taxes, so some Alaskan municipalities do have local sales tax. If you are buying a major item, these states can generate significant savings — though you should check if your home state requires you to pay a use tax on out-of-state purchases.
No. Both are consumption taxes ultimately borne by the consumer, but sales tax is only collected once — at the final point of sale by the retailer. VAT is collected at every stage of the supply chain, with businesses claiming back the tax they paid on inputs. VAT is used in Europe, the UK, India (as GST), and most of the world, while sales tax is used primarily in the US.
Yes, in most cases. Following the 2018 Supreme Court ruling in South Dakota v. Wayfair, states can require online retailers to collect sales tax even if they have no physical presence in the state. Most major online retailers (Amazon, Walmart, Target) now collect sales tax in all states that have it. For purchases from smaller sellers, you may technically owe use tax to your state — though compliance is rare.
Exemptions vary by state, but common categories include unprepared groceries (food for home preparation), prescription medicines, and medical devices. Some states also exempt clothing below a threshold (New York), agricultural supplies, and manufacturing equipment. Services are generally not taxed under traditional sales tax rules, though this is changing in some states.
Most US states impose a state-level sales tax and allow counties and cities to add their own local rates on top. The total rate you pay is the combined state + local rate. For example, California's state rate is 7.25%, but Los Angeles County adds 2.25%, bringing the combined rate to 10.25%. The combined rate is what appears on your receipt.