Taxes are a reality of our financial lives: You likely have income taxes withheld from every paycheck; if you’re a homeowner, you pay property taxes; and when you tap your card at the register when shopping, you pay sales tax.
You may wonder why you have to fork over that extra bit of your hard-earned cash. This guide will help explain what sales tax is and how it works, the sales tax rate in each state, and the pros (yes, there are some!) and cons of sales tax.
Table of Contents
Key Points
• Sales tax is a percentage of the retail costs of eligible goods and services; it functions as a revenue source for state and local governments.
• Revenue from sales taxes typically funds public services including police and fire departments, parks, infrastructure, and schools.
• Five states currently do not charge sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon, with Alaska allowing local taxes.
• The average sales tax rate in the United States is 7.53%, with rates varying by state and local jurisdiction.
• Common exemptions from sales tax include prescription drugs, groceries, essential personal items, and certain services, with variations by state.
What Is a Sales Tax?
Sales tax is a form of revenue for state and local governments. States and localities levy sales taxes on certain purchases of goods and services. For every eligible purchase you make, you’ll pay a sales tax — a percentage of the item’s retail cost.
State and local governments use the revenue generated from sales taxes to fund their budget. That means your tax dollars could pay for things like libraries, law enforcement, parks, infrastructure, and schools.
States and localities can charge separate sales taxes, though they don’t always do this. Five states currently do not charge sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of those five, only one state (Alaska) has cities/counties that charge local sales taxes. States without sales taxes may generate revenue from other types of taxes, like income taxes and property taxes.
And sometimes states with no sales tax, like Alaska, have a higher cost of living.
How Does Sales Tax Work?
Prices on items in the store and for certain services you may use generally don’t display the sales tax. So how does sales tax work? You’ll either need to do the math in your head (or using your phone) or wait until you get to the register to see how much you’ll owe in sales tax. When shopping online, e-commerce sites usually tabulate sales tax near the end of the transaction.
When you pay for the item or service, the merchant or service provider collects from you the sales tax owed. Then the business must submit the taxes to the state and local governments. That means it’s on the business, not you, to keep records of sales taxes.
However, although you don’t submit the sales taxes to the government yourself, you may want to keep track of sales taxes paid throughout the year. Why? If you’re itemizing deductions when preparing your tax return, you can take the SALT deduction (sales and local taxes). You can choose to deduct your state and local income taxes or your state and local sales taxes, whichever delivers a bigger tax benefit.
For tax year 2025 (and extending through tax year 2029), the One Big Beautiful Bill raises the SALT deduction from $10,000 to $40,000 annually for single and joint filers ($20,000 for those married and filing separately). The full deduction phases out for those with a modified adjusted gross income (MAGI) of more than $500,000 ($250,000 for individuals married and filing separately); for those with a MAGI of more than $600,000, the deduction reverts to $10,000.
Deductions can help to lower your taxable income and reduce your tax burden. Working with an accountant or using tax software may help you make sure you capture all appropriate deductions.
Types of Sales Tax
While you may be accustomed to thinking of sales tax as a single entity, there are actually several different kinds that you might encounter, including:
• General sales tax: This is the amount added to everyday purchases, such as a case for your laptop or a rug for your hallway.
• Excise tax: This is imposed on things like cigarettes, alcohol, and gambling, as well as gasoline, among other goods, activities, and services. These taxes may be applied by the government to reduce consumption of certain things or as a kind of user fee.
• Value-added tax (VAT): This is a tax that is imposed at various stages of production when an item or service is created. In the U.S., this tax isn’t levied separately; it’s rolled into the cost of a product. However, you may hear VAT referred to when you travel overseas, where this tax may be added onto the price of goods or services.
What Is the Average Sales Tax Percentage in the US?
The average sales tax percentage in the United States is 7.53%, according to 2026 information from the Tax Foundation, but this number is subject to change as states and cities update their tax code.
Here’s a table, based on 2026 data from the Tax Foundation, showcasing state sales tax rates, average local sales tax rates per state, and combined sales tax rates for each state and Washington, D.C.
| State | State Sales Tax Rate | Average Local Sales Tax Rate | Combined Sales Tax Rate |
|---|---|---|---|
| Alabama | 4.00% | 5.46% | 9.46% |
| Alaska | 0.00% | 1.82% | 1.82% |
| Arizona | 5.60% | 2.92% | 8.52% |
| Arkansas | 6.50% | 2.96% | 9.46% |
| California | 7.25% | 1.74% | 8.99% |
| Colorado | 2.90% | 4.99% | 7.89% |
| Connecticut | 6.35% | 0.00% | 6.35% |
| Delaware | 0.00% | 0.00% | 0.00% |
| Florida | 6.00% | 0.98% | 6.98% |
| Georgia | 4.00% | 3.49% | 7.49% |
| Hawaii | 4.00% | 0.50% | 4.50% |
| Idaho | 6.00% | 0.03% | 6.03% |
| Illinois | 6.25% | 2.71% | 8.96% |
| Indiana | 7.00% | 0.00% | 7.00% |
| Iowa | 6.00% | 0.94% | 6.94% |
| Kansas | 6.50% | 2.19% | 8.69% |
| Kentucky | 6.00% | 0.00% | 6.00% |
| Louisiana | 5.00% | 5.11% | 10.11% |
| Maine | 5.50% | 0.00% | 5.50% |
| Maryland | 6.00% | 0.00% | 6.00% |
| Massachusetts | 6.25% | 0.00% | 6.25% |
| Michigan | 6.00% | 0.00% | 6.00% |
| Minnesota | 6.875% | 1.26% | 8.14% |
| Mississippi | 7.00% | 0.06% | 7.06% |
| Missouri | 4.225% | 4.22% | 8.44% |
| Montana | 0.00% | 0.00% | 0.00% |
| Nebraska | 5.50% | 1.48% | 6.98% |
| Nevada | 6.85% | 1.39% | 8.24% |
| New Hampshire | 0.00% | 0.00% | 0.00% |
| New Jersey | 6.625% | -0.02% | 6.60% |
| New Mexico | 4.875% | 2.79% | 7.67% |
| New York | 4.00% | 4.54% | 8.54% |
| North Carolina | 4.75% | 2.25% | 7.00% |
| North Dakota | 5.00% | 2.09% | 7.09% |
| Ohio | 5.75% | 1.54% | 7.29% |
| Oklahoma | 4.50% | 4.56% | 9.06% |
| Oregon | 0.00% | 0.00% | 0.00% |
| Pennsylvania | 6.00% | 0.34% | 6.34% |
| Rhode Island | 7.00% | 0.00% | 7.00% |
| South Carolina | 6.00% | 1.49% | 7.49% |
| South Dakota | 4.20% | 1.91% | 6.11% |
| Tennessee | 7.00% | 2.61% | 9.61% |
| Texas | 6.25% | 1.95% | 8.20% |
| Utah | 6.10% | 1.32% | 7.42% |
| Vermont | 6.00% | 0.39% | 6.39% |
| Virginia | 5.30% | 0.47% | 5.77% |
| Washington | 6.50% | 3.01% | 9.51% |
| Washington, D.C. | 6.00% | 0.00% | 6.00% |
| West Virginia | 6.00% | 0.59% | 6.59% |
| Wisconsin | 5.00% | 0.72% | 5.72% |
| Wyoming | 4.00% | 1.56% | 5.56% |
Again, tax rates are subject to change. The rates above are as of January 1, 2026 from the Tax Foundation.
Recommended: Best States to Retire in for Tax Purposes
Why Are Sales Taxes Different in Every State?
Sales taxes are levied at the state and local levels. Because each state is permitted to form its own tax code, sales taxes can vary depending on which state you live in or visit.
In many states, cities and counties can also leverage their own sales taxes.
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How Is Sales Tax Calculated?
To see how sales tax is calculated, let’s look at an example. Suppose you want to buy a new cell phone charger for $20. The combined (state and local) sales tax rate is 7.5%. At the register, you’d pay $21.50. The store keeps its $20, and the $1.50 (7.5% of the sale price) goes to the government.
Here’s that math broken down:
| Sale Price | $20 |
|---|---|
| Total Sales Tax Rate | 7.5% |
| Sales Tax Calculation | $20 x 0.075 = $1.50 |
| Total Price | $20 + $1.50 = $21.50 |
What Kinds of Items Are Taxed?
Many goods and services have sales taxes, though there are exceptions. For example:
• States commonly do not charge sales tax on prescription drugs.
• Most states don’t charge sales tax on food and groceries you buy, either. Those that do may offer a reduced tax amount on food.
• Though it varies by state, some services — including digital services — may currently be exempt from sales taxes.
• Essential personal items such as diapers and feminine hygiene products are increasingly exempt from sales taxes.
In addition, certain items may have an excise tax, which is different from the typical sales tax rate. Common excise tax goods include alcohol, tobacco, and gasoline.
States may also have sales tax holidays, when certain goods are sold tax-free (such as school supplies during the back-to-school season).
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Pros and Cons of Sales Tax
There are benefits and drawbacks to sales tax. The pros and cons include:
• Pro: They’re easy to calculate. Compared to income taxes (from estimating tax withholdings to filing a tax return), the process of paying and collecting sales taxes is simple and straightforward.
• Con: It puts a heavier tax burden on low-income taxpayers. Income taxes in the U.S. are a progressive system: The more you make, the more you pay. Opponents of higher sales taxes — especially in states without income taxes — argue that this disproportionally puts the burden on low-income earners, since the sales tax rate is the same no matter how much money you have.
• Pro: Sales tax provides revenue for your state and city. Sales taxes fund essential services like the fire department, public education, and road construction as well as parks and recreation, among other things.
• Con: Sales taxes take more money out of your pocket. If you already pay income and property taxes, shelling out more money to the government in addition to what you pay when you file your tax return might feel painful.
The Takeaway
Sales taxes are a common way for states and municipalities to generate revenue to fund programs and departments that serve the public. In most states, you pay a sales tax every time you purchase goods and services, though there are exceptions. Certain items, such as groceries and prescription drugs are typically exempt from sales tax.
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FAQ
Do all states have sales tax?
All but five states currently have sales taxes. The five states without sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. In Alaska, however, local municipalities can charge a sales tax.
Are states with zero sales tax cheaper?
States with zero sales taxes might appear to be cheaper, but to get a full picture, it’s important to look at the state’s income taxes, property taxes, and overall cost of living. For example, Oregon has no sales tax, but it currently has the sixth highest income tax rate in the nation. And Alaska has one of the highest costs of living in the U.S.
What is the purpose of sales tax?
States and localities rely on sales taxes to fund public services. This can include supporting police and fire departments, parks and recreation, libraries, schools, and infrastructure like roads.
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