Sales Tax: State Rates, Online Rules & Exemptions

Sales tax is a consumption tax imposed by state and local governments on the sale of goods and, increasingly, services. It is collected by the seller at the point of sale and remitted to the taxing authority. As of 2025, 45 states and the District of Columbia impose a state-level sales tax, while five states have no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local jurisdictions to impose their own sales taxes.

Sales tax rates vary significantly across the country and can be layered, with state, county, city, and special district taxes combining to create widely varying effective rates. The combined state and local rate can range from 0% in tax-free states to over 11% in parts of Louisiana, Tennessee, and Arkansas. The average combined state and local rate across the U.S. is approximately 6.6%.

The 2018 Supreme Court decision in South Dakota v. Wayfair fundamentally changed online sales tax by allowing states to require out-of-state sellers to collect sales tax even without a physical presence. This has created complex compliance obligations for online sellers who may now owe sales tax in dozens of states based on their sales volume or transaction count in each state.

How It Works

When you purchase a taxable item, the seller adds the applicable sales tax to the purchase price and collects the total from you. The seller then remits the tax to the state and/or local revenue department on a regular filing schedule, typically monthly, quarterly, or annually depending on sales volume. The seller acts as a collection agent for the government and does not keep the sales tax.

For consumers, sales tax is straightforward at the register. For businesses, compliance is far more complex. Sellers must determine which items are taxable (exemptions vary widely by state), calculate the correct combined rate for the buyer location, collect the tax, and file returns with potentially dozens of jurisdictions. Many states use destination-based sourcing, meaning the tax rate is based on where the buyer is located, not where the seller is.

After the Wayfair decision, most states have enacted economic nexus laws requiring remote sellers to collect sales tax once they exceed certain thresholds in the state, typically $100,000 in sales or 200 transactions. Marketplace facilitators like Amazon, eBay, and Etsy are generally required to collect and remit sales tax on behalf of their third-party sellers, simplifying compliance for many small online businesses.