How Sales Tax Works
Sales tax is a percentage added to the price of many goods and some services, collected by the seller at the time of the sale and sent to the state (and often to counties and cities). In the U.S. there is no national sales tax: each state decides what is taxed, at what rate and who must collect it.
A few useful facts:
- Five states (Alaska, Delaware, Montana, New Hampshire and Oregon) have no statewide sales tax, though Alaska allows local sales taxes.
- The total rate often combines a state rate and local rates (county, city, special districts), so two stores a few miles apart can charge differently.
- Many states exempt or tax at a lower rate items such as groceries, prescription medicine or clothing, but the list varies.
- Rates change, so check your state's revenue department for the current rate.
👉 Calculate sales tax for any state with our free sales tax calculator →
Adding Tax to a Price
The formula: total = price × (1 + rate), and tax = price × rate. These examples use illustrative rates; replace them with your own:
| Price | Rate | Sales Tax | Total |
|---|---|---|---|
| $100 | 6.00% | $6.00 | $106.00 |
| $100 | 8.20% | $8.20 | $108.20 |
| $250 | 7.25% | $18.13 | $268.13 |
| $1,200 | 8.875% | $106.50 | $1,306.50 |
Swipe sideways to see all columns. On a big purchase the tax is significant: at 8.875%, a $1,200 item adds $106.50.
Taking the Tax Out of a Total (Reverse Sales Tax)
If you only have the receipt total, find the price before tax by dividing: price = total ÷ (1 + rate), and tax = total − price.
| Total Paid | Rate | Price Before Tax | Sales Tax Inside the Total |
|---|---|---|---|
| $53.00 | 6.00% | $50.00 | $3.00 |
| $108.20 | 8.20% | $100.00 | $8.20 |
| $215.00 | 7.50% | $200.00 | $15.00 |
A common mistake is to take the rate off the total (for example, 7.5% of $215 = $16.13). That is wrong, because the tax was calculated on the smaller price, not on the total. This matters when you are tracking business expenses, reconciling receipts or setting a price that includes tax.
Discounts and Quantity
In most states a store discount reduces the price before tax is calculated, so you pay less tax. A $200 item with a 25% discount and a 7% rate:
| Price | Tax at 7% | Total | |
|---|---|---|---|
| No discount | $200.00 | $14.00 | $214.00 |
| 25% discount | $150.00 | $10.50 | $160.50 |
The discount saves $50, and the tax falls by another $3.50. Manufacturer coupons and some rebates are treated differently in some states, so check how your state taxes them. With several items, the tax is calculated on the combined taxable amount, so multiply the price by the quantity first.
What Online Sellers Need to Know
For many years, a seller only had to collect sales tax in states where it had a physical presence. In South Dakota v. Wayfair (2018) the Supreme Court allowed states to require out-of-state sellers to collect tax once they pass an economic threshold, called economic nexus. As a result:
- Most states with a sales tax now have an economic nexus rule. A common threshold is about $100,000 in sales or 200 transactions into the state in a year, but the numbers differ by state and change, so check each state.
- Marketplace facilitator laws in most states make large marketplaces collect and remit the tax on sales made through them. This often covers third-party sellers, but you may still need to register or file in some states.
- Selling in several states can mean registering, collecting different rates by destination and filing returns in each one.
- Some goods and customers are exempt. If a buyer is reselling the item or is a tax-exempt organization, they may give you a certificate; keep it on file.
- Sales tax is not your revenue. It is money you collect for the state, so keep it out of your profit calculation. Our guide on Shopify store profit and the pricing guides for Amazon, Etsy and eBay show how to keep the real margin clear.
If you sell in a state where you must collect tax and do not, you can owe the uncollected tax, plus penalties and interest, out of your own pocket.
What Buyers Should Know: Use Tax
If you buy something from an out-of-state seller that did not collect tax, your state may still expect you to pay a use tax at its rate, usually when you file your state income tax return. Many consumers do not realize it exists, but it applies to the same purchases that would have been taxed in your state.
Frequently Asked Questions
How do I calculate sales tax?
Multiply the price before tax by the rate (as a decimal). Add that tax to the price for the total. For an 8.2% rate on $100, the tax is $8.20 and the total is $108.20.
How do I find the sales tax in a total?
Divide the total by 1 plus the rate to find the price before tax, and subtract the price from the total to find the tax.
Why is my rate different from the state rate?
Because counties, cities and special districts add local taxes on top of the state rate. The combined rate depends on the exact location of the sale.
Is sales tax charged on shipping?
It depends on the state: some tax shipping charges and others do not, or only when they are not separately stated. Check the rule in the state where you sell.
Do I need to collect sales tax if I sell online?
Often yes, in states where you have a physical presence or exceed that state's economic threshold, unless a marketplace collects it for you. Rules differ by state, so check with each state or a tax professional.
Conclusion & Recommended Next Steps
Sales tax is simple arithmetic once you have the right rate. The harder questions are which rate applies and, for sellers, where you must collect it. Use the calculator for quick answers on any price or total, and check your state's current rules before you rely on any rate. If you sell online, keep sales tax separate from your revenue and track where your sales go.
Sales Tax Calculator
Add tax to a price or find the tax inside a total, by state.
Shopify Profit Calculator
Find the profit on each online order.
Profit Margin Calculator
Price a product from the margin you want.
Federal Income Tax Calculator
Estimate your income tax alongside sales tax.
Disclaimer: This guide is intended solely for educational and informational purposes and does not constitute personalized financial, legal, or tax advice. Sales tax rates, exemptions and thresholds differ by state and local area and change often, and the rates in the examples are illustrations. Check your state's revenue department and consult a qualified tax professional before you collect, file or pay sales tax.