Sales Tax in the USA: How to Calculate It and Why It Varies by State
No Single Rate: How Sales Tax Works in the USA
Sales tax in the United States is a consumption tax added to the price of most goods and some services at the point of sale. The seller collects it from the customer and forwards it to the tax authority. Unlike income tax, it is not levied by the federal government at all — every rate and rule is set at the state or local level.
45 states and the District of Columbia impose a statewide sales tax.
Five states — Alaska, Delaware, Montana, New Hampshire and Oregon — have no statewide sales tax (the so-called NOMAD states).
Alaska is a special case: it has no state rate, but many of its local jurisdictions charge their own.
Because the tax applies only once — at the final retail sale — it is a single-stage tax. Businesses that buy goods to resell generally do not pay it, provided they present a valid resale certificate.
State Rate + Local Rate = What You Actually Pay
The rate a customer sees at checkout is usually built from several layers:
State base rate — set by the state (for example, California's 7.25%, the highest state-level rate; Colorado's 2.9%, the lowest non-zero rate).
Local rates — counties, cities and transit districts add their own percentages on top.
Special districts — some areas add small surcharges for transport, tourism or public projects.
Stacked together, these form the combined rate, and the spread is wide. Louisiana has the highest average combined rate at around 10.11%, while Alaska averages just 1.82%. Nationwide, the population-weighted average sits near 7.5%.
Worked example
How to Calculate Sales Tax
The formula itself is simple:
Sales tax = price × combined rate
Total = price + sales tax
In practice, three questions decide the outcome:
Is the item taxable? Most tangible goods are; groceries, prescription drugs and some services are often exempt or taxed at a reduced rate — and the rules differ by state.
What is the combined rate? You need the state rate plus every applicable local rate for that exact location.
Which location's rate applies? This is the sourcing rule.
Most states are destination-based: the rate follows where the buyer receives the goods. A few are origin-based for in-state sales, using the seller's location. For online orders shipped across state lines, the destination almost always governs.
Nexus: When You Are Required to Collect
A business only has to collect a state's sales tax if it has nexus — a sufficient connection to that state. There are two main types:
Physical nexus — an office, warehouse, inventory or employees in the state.
Economic nexus — enough sales into the state, even with no physical presence.
Economic nexus is the major shift. After the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require out-of-state sellers to collect once they cross a sales threshold — commonly $100,000 in annual sales into the state. Some states also used a 200-transaction trigger, though many are now dropping it.
Sales Tax vs. VAT: The Core Differences
Europe and much of the world use value-added tax (VAT) instead. Both are consumption taxes ultimately paid by the end customer, but the mechanics differ sharply:
Where it is charged: VAT is collected at every stage of the supply chain, with businesses reclaiming the VAT they paid on inputs. US sales tax is charged once, at the final sale.
How it is shown: In many countries VAT is built into the shelf price. US sales tax is added at the register and listed separately.
Who sets the rate: VAT is set nationally, giving one main rate per country. US sales tax is set by states and thousands of local jurisdictions — there is no single national rate.
Self-assessment: When a US seller does not collect, the buyer may owe an equivalent use tax directly to the state.
How does the rest of the world tax consumption?
Most countries skip the state-by-state patchwork and use a single value-added tax instead. See how VAT collects at every step of the supply chain — and why that changes everything for pricing.
The Bottom Line
For anyone selling into the US market, there is no shortcut to "the US rate." Your obligations depend on where your customers are, whether you have nexus there, and what you sell. Getting the combined rate and the sourcing right for each jurisdiction — and monitoring nexus thresholds as you grow — is what keeps a business compliant.
FAQ:
Is there a federal sales tax in the USA?
No. The United States has no national or federal sales tax. Only states and local jurisdictions levy it, which is why there is no single US rate.
Which US states have no sales tax?
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska is an exception, as many of its local jurisdictions still charge their own.
What is economic nexus?
An obligation to collect a state's sales tax based on your sales volume there, even without a physical presence. Since the 2018 Wayfair ruling, the common threshold is $100,000 in annual sales into a state.
Do foreign or online sellers have to collect US sales tax?
Yes, if they cross a state threshold for physical or economic nexus. An overseas online shop can be required to register and collect without ever having an office in the country.
What is the difference between sales tax and use tax?
Use tax is the buyer-side counterpart. When a seller does not collect sales tax, the buyer may owe an equivalent use tax directly to the state.
How is US sales tax different from VAT?
Sales tax is charged once, at the final retail sale, and added at checkout. VAT is charged at every stage of the supply chain, with businesses reclaiming input VAT, and is usually built into the displayed price.
