Sales Tax
A state and local consumption tax levied as a percentage of the retail price of goods and certain services.
What is Sales Tax?
Sales tax is a consumption tax imposed by state and local governments on the retail sale of tangible personal property and, in many jurisdictions, selected services. The U.S. has no federal sales tax; rates vary by state from 0% (Oregon, Montana, New Hampshire, Delaware, and Alaska impose none) to over 7%, with local add-ons pushing combined rates above 10% in some areas. Online retailers must collect sales tax in states where they have economic nexus following the Supreme Court's South Dakota v. Wayfair (2018) ruling. Groceries, prescription drugs, and clothing are commonly exempt in many states.
Example
A Tennessee consumer purchases a $2,000 laptop. Tennessee's combined state and local sales tax rate averages approximately 9.55%. The buyer pays $2,000 × 9.55% = $191 in sales tax at checkout, bringing the total to $2,191. The same dollar tax applies to all income levels, which is why sales tax is considered regressive.
Source: Tax Foundation — State and Local Sales Tax Rates 2024