In the United States, hundreds of billions of dollars in sales taxes are collected each year. Calculating sales tax in the US can be difficult if you’re unfamiliar with it, especially when you sell across multiple states or into the country from abroad. Sales tax rates are set at the state level and often layered with local taxes, which means the amount you need to charge often changes from one customer to the next.

Below, we’ll explore how the United States sales tax rate works, how sales tax rates vary by state and locality, and what businesses need to know to stay compliant.

What’s in this article?

• What is the United States sales tax rate?
  
• What are the current US sales tax rates by state?
  
• How do local sales taxes work in the United States?
  
• How do you calculate sales tax in the United States?
  
• What do businesses need to know about US sales tax compliance?
  
• How Stripe Tax can help
  

What is the United States sales tax rate?

The United States doesn’t have a national sales tax. Instead, sales tax is set at the state level, with many cities, counties, and special districts adding their own taxes on top. At the state level, sales tax rates range from 0%–7.250%, but some states allow local governments to charge additional sales tax. Other states without general sales tax sometimes apply targeted taxes to categories such as accommodations.

What are the current US sales tax rates by state?

Sales tax rates in the US vary from state to state. Understanding the state-level baseline is the first step before factoring in local taxes or product-specific rules.

Here’s how rates vary among states:

• States with no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have state sales tax, but Alaska allows local sales taxes. Some of these states apply tax to specific transactions such as lodging and vehicle rentals.

• States with the highest base sales tax rates: California has the highest statewide rate at 7.250%. Indiana, Mississippi, Rhode Island, and Tennessee have the second-highest rate at 7.000%.

• States with lower-than-average rates: Colorado has the lowest nonzero statewide rate at 2.900%. Alabama, Georgia, Hawaii, New York, and Wyoming have rates of just 4.000%.

• States without local add-on taxes: A small group of states, including Indiana, Michigan, Massachusetts, and New Jersey, don’t allow cities or counties to add additional sales taxes, which means the rate is uniform statewide.

• States where local taxes are higher: In Oklahoma, Colorado, Louisiana, Alabama, and New York, average local taxes more than double the final combined tax rate paid by customers.

Here’s each state’s sales tax rate:

• Alabama: 4.000%

• Alaska: 0%

• Arizona: 5.600%

• Arkansas: 6.500%

• California: 7.250%

• Colorado: 2.900%

• Connecticut: 6.350%

• Delaware: 0%

• Florida: 6.000%

• Georgia: 4.000%

• Hawaii: 4.000%

• Idaho: 6.000%

• Illinois: 6.250%

• Indiana: 7.000%

• Iowa: 6.000%

• Kansas: 6.500%

• Kentucky: 6.000%

• Louisiana: 5.000%

• Maine: 5.500%

• Maryland: 6.000%

• Massachusetts: 6.250%

• Michigan: 6.000%

• Minnesota: 6.875%

• Mississippi: 7.000%

• Missouri: 4.225%

• Montana: 0%

• Nebraska: 5.500%

• Nevada: 6.850%

• New Hampshire: 0%

• New Jersey: 6.625%

• New Mexico: 4.875%

• New York: 4.000%

• North Carolina: 4.750%

• North Dakota: 5.000%

• Ohio: 5.750%

• Oklahoma: 4.500%

• Oregon: 0%

• Pennsylvania: 6.000%

• Rhode Island: 7.000%

• South Carolina: 6.000%

• South Dakota: 4.200%

• Tennessee: 7.000%

• Texas: 6.250%

• Utah: 6.100%

• Vermont: 6.000%

• Virginia: 5.300%

• Washington: 6.500%

• Washington, DC: 6.000%

• West Virginia: 6.000%

• Wisconsin: 5.000%

• Wyoming: 4.000%

How do local sales taxes work in the United States?

The US has thousands of sales tax jurisdictions, each with its own combination of state and local rates. In states that allow local sales taxes, the customer pays a combined rate that includes the state tax plus any applicable county, city, and district taxes. High local taxes in certain cities and counties can push total sales tax rates into double digits, even when the state rate itself is moderate.

Tax boundaries don’t always map to basic five-digit ZIP codes. Determining the correct local tax rate often requires address-level accuracy or at least a full nine-digit ZIP code. In states such as California, Texas, Colorado, and New York, the difference between two nearby locations can be several percentage points depending on local tax rules.

Some states use home rule administration. In Colorado, for example, some municipalities administer their own sales taxes and collect them separately. Businesses might have to register, file, and remit taxes at both the state and local levels.

How do you calculate sales tax in the United States?

To calculate the right amount of sales tax, you must apply the correct rate and understand what’s taxable. Here’s how to calculate US sales tax:

• Begin with the customer’s location: US sales tax is often based on destination, which means it’s calculated based on where the customer received the product or service, not where the business is located. But origin-based sales tax is also common.

• Identify the full combined tax rate: The applicable rate usually includes the state sales tax plus any county, city, and special district taxes, depending on the customer’s address.

• Confirm taxability: Taxable products vary by state and sometimes by locality, with common exceptions for groceries, clothing, digital goods, or services based on jurisdiction.

• Determine the taxable amount: Sales tax is typically calculated on the full sales price before other taxes are added. It’s adjusted only for valid, legally approved discounts.

• Apply the tax rate to the taxable amount: Convert the combined rate into a decimal and multiply it by the taxable price to calculate the tax owed on the transaction.

• Add the tax to the customer’s total: US sales tax is usually added at checkout rather than included in the listed price. It appears as a separate line item on receipts or invoices.

• Handle rounding consistently: States generally require sales tax to be rounded to the nearest cent, and many businesses calculate tax on the total invoice rather than item by item. Some states are preparing for the discontinuation of the penny by encouraging cash-rounding policies to the nearest nickel for final transactions.

• Account for sourcing rules: Some states apply origin-based or mixed sourcing rules for in-state sales. That can affect which local rate applies, even though the calculation method stays the same.

Tools like Stripe Tax help businesses monitor nexus thresholds, register in new states, calculate the correct tax in real time, and generate reporting data to support filings.

What do businesses need to know about US sales tax compliance?

Sales tax compliance in the US is about knowing which rules apply and when. The more places you sell into, the more obligations you might have.

Keep the following in mind:

• Sales tax obligations are based on nexus: A business is required to collect sales tax in any state where it has nexus, which can be triggered by physical presence, employees, inventory, or economic activity (e.g., exceeding a sales threshold) in the state. Since the South Dakota v. Wayfair decision, many states have enforced economic nexus rules. They typically require registration once annual sales exceed a dollar threshold or transaction count.

• Each state requires separate registration: There’s no federal sales tax registration so companies must register individually with each state where they have nexus before they collect tax from customers.

• You must collect the correct tax once you’re registered: After registration, businesses are responsible for charging the correct state and local tax on all taxable transactions delivered into that state.

• You must file and remit sales tax on a set schedule: States assign filing frequencies based on sales volume, commonly monthly or quarterly. Companies must file returns even during periods with no taxable sales.

• Collected tax isn’t business revenue: Sales tax is held in trust for the state, and failing to remit it on time can result in penalties, interest, or personal liability in some cases.

• Product taxability varies by state: States have different rules on whether they tax items such as groceries, clothing, digital goods, software, and services.

• Exempt sales require documentation: Tax-exempt or resale transactions generally require valid exemption certificates, which businesses must collect and retain in case of an audit.

States actively audit companies for sales tax compliance. Undercollection often leads to back taxes, penalties, and interest assessed against the business.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.