Sales tax in the United States is confusing by design -- or at least by accident. Unlike most countries with a single national rate, the US has a patchwork of state, county, and city taxes that can stack on top of each other. A purchase in downtown Chicago or parts of Tennessee can carry a combined rate above 10%, while the same purchase in Oregon costs nothing in sales tax. Here's how it all works.
How US Sales Tax Is Structured
Most US sales tax is collected at the point of sale and is made up of two or more layers:
- State rate: Set by the state legislature. Ranges from 0% (Oregon, Montana, Delaware, New Hampshire, Alaska) to 7.25% (California).
- Local rate: Added on top by the county, city, or special district. Can add 0% to 5%+ depending on location.
- Combined rate: What you actually pay. State rate plus local rate. This is the number that matters on your receipt.
This is why two stores in the same state can charge different tax rates -- one in a city with a high local tax, and one just outside the city limits.
The Five States With No Sales Tax
Oregon, Montana, Delaware, New Hampshire, and Alaska charge no state-level sales tax. If you're making a large purchase, shopping in one of these states (or shipping there) can produce meaningful savings. A $2,000 electronics purchase in California at 9% state + local rate costs $180 in tax that would be zero in Oregon.
The one exception: Alaska has no state tax but does allow local municipalities to set their own rates. Some Alaskan cities do charge local sales tax.
States With the Highest Combined Rates
| State | State Rate | Avg. Local Rate | Avg. Combined Rate |
|---|---|---|---|
| Louisiana | 5.00% | 5.13% | 10.13% |
| Tennessee | 7.00% | 2.61% | 9.61% |
| Washington | 6.50% | 3.07% | 9.57% |
| Arkansas | 6.50% | 2.98% | 9.48% |
| Alabama | 4.00% | 5.46% | 9.46% |
| Oklahoma | 4.50% | 4.56% | 9.06% |
| California | 7.25% | 1.78% | 9.03% |
Rates are averages across each state and vary by city. Source: Tax Foundation 2024 data.
What Is and Isn't Taxed
Sales tax does not apply uniformly to everything you buy. Most states exempt or partially exempt:
- Groceries: Fully exempt in about 32 states. Partially taxed in others. Many states tax candy and soda even when regular food is exempt.
- Prescription drugs: Exempt in most states.
- Clothing: Exempt in states like Pennsylvania and New Jersey, taxable in most others. Some states hold annual "tax-free weekends" for back-to-school clothing purchases.
- Digital goods and services: Rules vary widely and are still evolving. Software, streaming subscriptions, and digital downloads may or may not be taxed depending on the state.
Online Shopping and Sales Tax
Since the Supreme Court's 2018 ruling in South Dakota v. Wayfair, online retailers are required to collect sales tax in states where they have significant economic activity -- even without a physical store or warehouse there. Most major retailers (Amazon, Walmart, Target, Apple) now collect tax in all 45 states that have one.
Where online shopping still offers a tax advantage: small retailers that haven't crossed the economic nexus threshold in your state may not collect tax. However, you are legally required to self-report and pay "use tax" on those purchases in most states -- a rule very few consumers follow in practice.
How to Calculate Sales Tax on Any Purchase
The formula is simple: Tax Amount = Purchase Price x (Tax Rate / 100). Then: Total = Purchase Price + Tax Amount.
Example: $350 item in a city with 8.5% combined tax. $350 x 0.085 = $29.75 tax. Total: $379.75.
To find the pre-tax price when you only have the total: Pre-tax price = Total / (1 + tax rate). Example: you paid $379.75 total at 8.5% tax. Pre-tax price = $379.75 / 1.085 = $350.00.
Tax-Free Weekends
About 17 states hold annual sales tax holidays -- typically in August for back-to-school shopping, though some states run them for emergency preparedness supplies, Energy Star appliances, or firearms. Items covered vary by state but often include clothing, shoes, school supplies, and computers under a certain price threshold. These can represent genuine savings on large clothing or electronics purchases if you plan around them. To calculate exactly what you'll pay including tax on any purchase, use our Sales Tax Calculator.