How US Sales Tax Works

The US has no national sales tax. Instead, 45 states plus D.C. levy their own, and on top of the statewide rate, counties, cities, and special districts add their own local rates. The total you pay is the sum of all of them for that exact location. That's why the same purchase can be taxed at 6.5% one town over and 9.5% in the next — the state rate is identical, but the local add-ons differ. Five states (Alaska, Delaware, Montana, New Hampshire, Oregon) have no statewide sales tax, though Alaska allows local ones.

This stacking is why a single 'my state's rate' number is often wrong at the register. Combined rates in some cities exceed 10%, while rural areas of the same state might be a few points lower. A statewide base rate is a starting point; the real rate depends on the precise delivery or store address.

For online orders, which location's rate applies? Most states are 'destination-based' — you pay the rate where the buyer receives the item, not where the seller sits. A handful are 'origin-based' for in-state sales. This is why your cart's tax changes when you change the shipping address, and why the same store charges different tax to different customers.

Whether an online seller must collect at all comes down to 'nexus' — a sufficient connection to a state. Since the 2018 Supreme Court Wayfair decision, states can require out-of-state sellers to collect once they cross an economic threshold (commonly $100,000 in sales or 200 transactions into that state), even with no physical presence. That's why small shops now collect tax nationwide, and why 'no tax online' largely ended.

Rates are only half the story — what gets taxed differs by state. Many states exempt or reduce tax on 'necessities': most groceries, prescription drugs, and sometimes clothing. So a cart of food and a cart of electronics at the same store can be taxed at completely different effective rates. Some states even run temporary 'tax holidays' (back-to-school, disaster prep) where specific categories are briefly exempt.

For everyday estimating, a combined rate applied to the taxable subtotal gets you close, but two things keep it approximate: exemptions on part of the cart, and the address-level precision of local rates. When accuracy matters — pricing, invoicing, bookkeeping — look up the exact combined rate for the specific location rather than trusting a statewide figure.