This blog was last updated on May 21, 2025
With nearly 13,000 state and local tax jurisdictions across the U.S., sales tax is one of the most deceptively complex parts of doing business, especially for companies operating in multiple states or selling online. While the basic idea is simple—collect the correct rate and remit it to the right authority—the rules, rates, and requirements vary dramatically depending on where your customers are located.
What is sales tax exactly? How does it differ from use tax? And how can businesses ensure they’re calculating, collecting, and remitting it accurately? Read on to explore fundamentals of sales tax, how it’s applied across different jurisdictions and what businesses need to know to stay compliant.
What is sales tax?
Sales tax is a transactional tax imposed by state and local governments on the sale of goods and certain services. It’s considered a consumption tax or an indirect tax because it’s ultimately paid by the end consumer, however, it’s the business’s responsibility to calculate, collect and remit it to the appropriate tax authority.
What is sales tax nexus?
Sales tax nexus refers to the level of connection a business has with a state that triggers a legal obligation to collect and remit sales tax. If your business has nexus in a particular state, you’re required to register with that state’s tax authority, collect the correct sales tax from customers, and file regular returns.
There are two main types:
- Physical Nexus: Established when your business has a tangible presence in a state such as an office, warehouse, employee, or inventory.
- Economic Nexus: Triggered when your business exceeds a certain threshold of sales or transactions in a state, even without a physical presence. This became especially important after the South Dakota v. Wayfair ruling in 2018, which allowed states to enforce sales tax obligations on remote sellers.
Note: Every state sets its own nexus rules, so it’s critical for businesses, especially those selling online or across multiple states, to monitor where they’ve established nexus and ensure compliance in each jurisdiction.
What items are exempt from sales tax, or taxed at a reduced rate?
Not all transactions are subject to sales tax or subject to tax at the standard rate. Depending on the state, certain goods, services, or buyers may qualify for exemptions — and it’s up to the seller to apply those rules correctly. Common sales tax exemptions include:
- Personal and professional services, most states have written their sales tax laws to apply sales tax to all tangible property (unless specifically excluded from tax) but exempt all services unless specifically listed as taxable. There are exceptions including South Dakota, New Mexico, Hawaii and West Virginia—all of which broadly tax both goods and services.
- Essential goods, such as groceries, clothing, prescription medications, or medical devices depending on the state. In recent years, we have seen a broad uptick in sales tax exemptions for diapers and feminine hygiene products and even more states have adopted exemptions or reduced rates on groceries.
- Sales to exempt organizations, including nonprofits, government agencies, manufacturers, agricultural producers, and educational institutions.
- Resale purchases, where a business buys products for the purpose of reselling them, often using a resale certificate.
Exemptions vary significantly by state. Each jurisdiction has its own definition of what qualifies. Even states with similar definitions may interpret them differently and sellers must maintain valid exemption certificates to support any non-taxed transactions that are based on the nature of the purchaser or the use to which they will put the item.
How is sales tax calculated?
Sales tax is typically a percentage of the sale price. The seller calculates the tax based on the applicable rate and adds it to the total at checkout. The collected tax is then filed and paid to the state or local government. To calculate sales tax:
- Identify the correct rate (state + local rate).
- Multiply the rate by the total sale price.
- Add the tax to the total purchase.
Example:
If an item costs $100 and the sales tax rate is 7%, the tax is $7. The total price paid by the buyer would be $107.
Sales Tax vs. VAT
Sales tax and value-added tax (VAT) are both indirect (or consumption) taxes, but they operate differently:
| Factor | Sales Tax | VAT |
| When it’s charged | At the point of final consumption | At every stage of the supply chain — from production to final sale |
| Visibility | Typically shown on the customer invoice | Generally shown on the invoice for B2B sales, often included in the advertised price for B2C transactions. |
| Who pays it? | The end consumer | Business buyers within the supply chain have the ability to reclaim VAT paid from the VAT they collect. The end consumer has no such ability and bears the full VAT burden. |
| Where is it used? | Primarily in the United States | Common across the rest of the world. |
In short, sales tax is a single-stage tax, while VAT is a multi-stage tax that requires businesses to charge VAT on sales and recover VAT paid on purchases. For U.S.-based companies entering international markets, this shift can introduce entirely new compliance obligations including VAT registration, collection, and compliance, continuous transaction controls, mandatory electronic invoicing and cross-border reporting.
Sales Tax Compliance
For businesses, sales tax compliance isn’t as simple as charging customers an extra percentage at checkout. It’s a multilayered process that requires vigilance, organization, and up-to-date knowledge of state and local regulations.
- Register in every state where they have nexus, whether physical or economic
- File returns on a regular cadence — monthly, quarterly, or annually, depending on the jurisdiction and your volume of sales
- Remit collected taxes accurately and on-time to the correct state or local authority
- Maintain thorough documentation to support exemption claims and prepare for potential audits
What are the sales tax rates?
Almost every state in the country, including Washington DC and the Commonwealth of Puerto Rico, imposes a sales tax. The exceptions are New Hampshire, Oregon, Montana, Alaska, and Delaware. Complexities kick in immediately though because while there is no state-level sales tax in Alaska (at least not yet), they do have tax at the county (Borough) and city level. State level rates are relatively stable. In the last 12 months, only Louisiana has adjusted their standard state rate.
Local rates are a different story. Thirty-seven states have local sales tax at the county, city and/or district level. Those rates can and do change all the time. In fact, during 2024, there were 643 local rate changes
State and Local Sales Tax Base Rates
Rates differ not just by state, but often by county, city, or even ZIP code. And thanks to destination-based sourcing rules in many jurisdictions, the correct rate depends on where the buyer is located— not the seller. Below is a state-by-state breakdown of sales tax rates as of April 2025.
Alabama
- State rate: 4%
- Local additions: Up to 7%, for a combined rate as high as 11%
Alaska
- State rate: None
- Local additions: Up to 9.5%
Arizona
- State rate: 5.6%
- Local additions: Up to 5.6%
Arkansas
- State rate: 6.5%
- Local additions: Up to 5%
California
- State rate: 7.25%
- Local additions: Up to 3%, total rate can reach 10.25%
Colorado
- State rate: 2.9%
- Local additions: Up to 8.3%
Connecticut
- State rate: 6.35%
- Local additions: None
Delaware
- State rate: None
- Local additions: None
- Note: Delaware has no sales tax but imposes a gross receipts tax on businesses
Florida
- State rate: 6%
- Local additions: Up to 2%
Georgia
- State rate: 4%
- Local additions: Up to 5%
Hawaii
- State rate: 4% (General Excise Tax)
- Local additions: 0.5% in some counties
Idaho
- State rate: 6%
- Local additions: Up to 3%
Illinois
- State rate: 6.25%
- Local additions: Up to 4.75%
Indiana
- State rate: 7%
- Local additions: None
Iowa
- State rate: 6%
- Local additions: Up to 2%
Kansas
- State rate: 6.5%
- Local additions: Up to 4.1%
Kentucky
- State rate: 6%
- Local additions: None
Louisiana
- State rate: 5%
- Local additions: Up to 7%
Maine
- State rate: 5.5%
- Local additions: None
Maryland
- State rate: 6%
- Local additions: None
Massachusetts
- State rate: 6.25%
- Local additions: None
Michigan
- State rate: 6%
- Local additions: None
Minnesota
- State rate: 6.875%
- Local additions: Up to 2%
Mississippi
- State rate: 7%
- Local additions: Minimal (some cities)
Missouri
- State rate: 4.225%
- Local additions: Up to 5.5%
Montana
- State rate: None
- Local additions: None
- Note: No statewide or local sales tax; some resort areas may charge a local resort tax
Nebraska
- State rate: 5.5%
- Local additions: Up to 2%
Nevada
- State rate: 6.85%
- Local additions: Up to 1.53%
New Hampshire
- State rate: None
- Local additions: None
- Note: No sales tax, but taxes apply to specific services and meals
New Jersey
- State rate: 6.625%
- Local additions: Special Urban Enterprise Zones at 3.3125%
New Mexico
- State rate: 5.125% (Gross Receipts Tax)
- Local additions: Up to 4%
New York
- State rate: 4%
- Local additions: Up to 4.875%, total up to 8.875% in NYC
North Carolina
- State rate: 4.75%
- Local additions: Up to 2.75%
North Dakota
- State rate: 5%
- Local additions: Up to 3.5%
Ohio
- State rate: 5.75%
- Local additions: Up to 2.25%
Oklahoma
- State rate: 4.5%
- Local additions: Up to 7%
Oregon
- State rate: None
- Local additions: None
- Note: No sales tax at all
Pennsylvania
- State rate: 6%
- Local additions: Up to 2% (Philadelphia and Allegheny County)
Rhode Island
- State rate: 7%
- Local additions: None
South Carolina
- State rate: 6%
- Local additions: Up to 3%
South Dakota
- State rate: 4.2%
- Local additions: Up to 2%
Tennessee
- State rate: 7%
- Local additions: Up to 2.75%
Texas
- State rate: 6.25%
- Local additions: Up to 2%
Utah
- State rate: 4.85%
- Local additions: Up to 3.65%
Vermont
- State rate: 6%
- Local additions: Up to 1%
Virginia
- State rate: 4.3%
- Local additions: Up to 2.7%
Washington
- State rate: 6.5%
- Local additions: Up to 4%
West Virginia
- State rate: 6%
- Local additions: Up to 1%
Wisconsin
- State rate: 5%
- Local additions: Up to 0.6%
Wyoming
- State rate: 4%
- Local additions: Up to 2%
Want more state-specific info? Browse the State-by-State Sales Tax Guide
FAQs About Sales Tax
How does sales tax work?
Sellers collect a percentage of each sale and remit it to the government. The rate depends on where the buyer is located.
What is the purpose of sales tax?
Simple: Revenue. Sales tax helps fund schools, roads, emergency services, and all the other infrastructure we rely on.
It’s a consumption tax, which means the more you buy, the more you pay — and unlike income tax, it doesn’t care how much you earn.
Is sales tax the same throughout the United States?
No. Rates and rules vary by state and even city or county.
How do I find the sales tax rate in my area?
Sales tax rates are determined by a combination of state, county, city, and local jurisdiction rules—which means the total rate can vary significantly even within the same ZIP code. For more information, explore our State-by-State Sales Tax Guide.
Can businesses claim sales tax back?
In most cases, no—businesses cannot claim sales tax back like they can with VAT. Once sales tax is paid on a taxable purchase, it typically becomes a cost of doing business. However, there are a few important exceptions, including some resale purchases, specific exempt use cases (manufacturing, agriculture, etc.), or in a situation where you were charged sales tax in error.
Who’s responsible for collecting sales tax?
The seller is typically responsible for collecting sales tax from the buyer at the point of sale and remitting it to the appropriate state or local tax authority. If your business has established nexus within a state you are required to register, collect, and remit sales tax in that jurisdiction. This applies whether you’re selling in a physical store, online, or across state lines.
Missing a nexus obligation can lead to uncollected taxes, interest, penalties, and potential audit risk. That’s why many growing businesses rely on automated tools or compliance partners to track nexus and manage multi-state obligations effectively.
