How US sales tax actually works
Sales tax in the US is a patchwork. Five states have no state-level sales tax at all: Delaware, Montana, New Hampshire, Oregon, and Alaska (though some Alaskan cities collect local tax). Most other states have a base state rate, and cities and counties layer local taxes on top. The combined rate is what you actually collect at the register. The rates in this calculator are combined state + local averages — real rates at a specific address can be up to 2% higher.
For the most accurate number, look up the specific ZIP or city rate through your state's revenue department or an address-level rate API. The calculator lets you override the average with a custom rate when you know the exact city rate for a transaction.
When small businesses have to collect sales tax
The rule used to be simple: you had to have a physical presence (store, office, warehouse) in a state to be required to collect its sales tax. After South Dakota v. Wayfairin 2018, that changed. Now every state with sales tax has an "economic nexus" threshold — typically $100,000 in sales into that state per year, or 200 transactions. Hit the threshold and you must register, collect, and remit tax in that state.
For most small businesses, this creates a compliance mess. If you are shipping products to all fifty states from a Shopify store, you could easily cross the $100,000 threshold in three or four states and suddenly owe registration and filing in each one. Services are often exempt from this, but not always — some states tax certain services. If you are crossing $500,000 per year in out-of-state sales, a sales tax automation tool is the single best $50–150/month you can spend.
Taxable vs exempt items
- Usually taxable: physical goods, prepared food, digital products (varies by state), personal services in some states.
- Usually exempt: groceries (many states), prescription drugs, clothing (in some states), services in most states, SaaS (varies).
- Special cases: many states tax dietary supplements differently from food, and "ready to eat" food is often taxed while "grocery" food is not.
If you are not sure whether an item is taxable, check your state's revenue site for "taxability matrix." Most states publish one.
Collecting sales tax on invoices
If you sell services, invoice the correct state and city rate based on where the client is located (typically) or where the service is performed (sometimes). Use our invoice generator and enter the tax rate returned by this calculator into the tax field. Always show the tax as a separate line — never bury it in the subtotal, since clients and their AP teams need to see it broken out.
How to file and remit sales tax
Each state has its own filing cadence — monthly, quarterly, or annual depending on volume. Most require filing even in zero-tax months. Penalties for late filing are steep; states rely on sales tax revenue and aggressively pursue non-filers. The practical minimum setup for a small business with sales across multiple states:
- Register in every state where you have nexus.
- Set up automated tax collection at checkout (Shopify, Stripe Tax, TaxJar, Avalara, etc.).
- File returns on the schedule each state requires.
- Remit the collected tax by the deadline.
- Keep records for at least three years.
Sales tax holidays and promotions
Many states run annual sales tax holidays — commonly for back-to-school items, emergency supplies, or energy-efficient appliances. If your products fall in a holiday category, tax is waived for that weekend. These are often good promotional windows even if you only run a single-state business, since consumers actively shop during the holidays.
Marketplace facilitator laws
If you sell through Amazon, Etsy, eBay, or Walmart marketplace, the marketplace itself is now required to collect and remit sales tax for you in most states. That simplifies life for sellers but creates reporting quirks. You still owe income tax on the sale, and in a few states you still owe a business license or "gross receipts" tax based on the sale even though you did not handle the sales tax. Check with your state.
Common sales tax mistakes
- Collecting but not remitting. Sales tax is a pass-through — it is not your money. Never spend it. Keep it in a separate bank account if needed.
- Wrong rate. Using the state rate when you needed the combined state + local rate. The calculator above defaults to the combined average.
- Not registering when you cross nexus thresholds. States are notified by platforms; you will get a letter if you do not register.
- Charging tax on exempt items. Grocery stores that tax groceries when the state exempts them face refund liability.
- Charging nonresidents of your state without nexus. You should not be collecting for states you do not have nexus in.
Rate reference (combined state + local averages)
The dropdown includes all fifty states plus DC, using approximate combined state + local rates. High-rate states include Louisiana, Tennessee, Arkansas, and Washington — all near 9.5%. Zero-tax states include Oregon, Montana, New Hampshire, and Delaware. Alaska has no state tax but many boroughs charge local tax.
For estimated taxes on income (federal + state), use our quarterly tax estimator. For pricing your products with tax already baked into the experience, combine this calculator with the pricing calculator to see after-tax consumer price.