Sales Tax by State: Here’s How Much You’re Really Paying

Sales tax can be high or low, depending on where you are.

States assess sales tax on most tangible purchases, such as clothes you buy at the local mall. Sales tax rates vary by state, and they can differ significantly from state to state. But state sales tax rates aren’t the end of the story. Many counties and cities add on their own local sales taxes, raising your final tax bill. Here’s a look at how tax rates vary by state, how state sales taxes work and how much tax you should expect to pay.

Read: Best and Worst States for Taxes — Ranked

State Sales Tax Rates

State sales tax rates are all over the map. Whereas you’ll find rates of 7% in Indiana, Mississippi, Rhode Island and Tennessee, California claims top billing with a sales tax percentage of 7.25%. On the other end of the scale, five states — Alaska, Delaware, Montana, New Hampshire and Oregon — don’t have any state sales taxes at all. Here’s a look at how sales tax rates vary by state:

State Sales Tax
Alabama 4%
Alaska 0%
Arizona 5.6%
Arkansas 6.5%
California 7.25%
Colorado 2.9%
Connecticut 6.35%
Delaware 0%
Florida 6%
Georgia 4%
Hawaii 4%
Idaho 6%
Illinois 6.25%
Indiana 7%
Iowa 6%
Kansas 6.5%
Kentucky 6%
Louisiana 4.45%
Maine 5.50%
Maryland 6%
Massachusetts 6.25%
Michigan 6%
Minnesota 6.88%
Mississippi 7%
Missouri 4.23%
Montana 0%
Nebraska 5.5%
Nevada 6.85%
New Hampshire 0%
New Jersey 6.63%
New Mexico 5.13%
New York 4%
North Carolina 4.75%
North Dakota 5%
Ohio 5.75%
Oklahoma 4.5%
Oregon 0%
Pennsylvania 6%
Rhode Island 7%
South Carolina 6%
South Dakota 4.5%
Tennessee 7%
Texas 6.25%
Utah 4.85%
Vermont 6%
Virginia 4.3%
Washington 6.5%
West Virginia 6%
Wisconsin 5%
Wyoming 4%
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How Much Is Sales Tax?

Of the states that levy sales tax, the lowest burden is in Colorado, with a sales tax rate of 2.9%. But Colorado has local tax rates as high as 8.3% — second highest in the country next to Louisiana, where local tax rates can reach 8.5% — meaning you could pay as much as 11.2% total tax in some regions of Colorado.

Of the five states with no state sales tax, only Alaska has local sales tax, which can reach 7.85%.  Overall, local sales taxes are charged in addition to state sales taxes in 38 U.S. states.

Some taxpayers can reduce the cost of sales taxes by using itemized deductions when they file personal income tax returns. Itemizing on Form 1040 allows you to deduct either your state and local income taxes or your state and local sales taxes, thereby reducing your total cost.

Check Out: Top 25 Tax-Friendly States To Retire

How To Calculate Sales Tax

To calculate sales tax, simply multiply the sales tax rate by the price of your purchase to get the total price. Don’t forget to include both state and local sales taxes to get the proper amount that you’d owe.

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Sales Tax Uses

State sales tax revenues are used for general expenditures. More than half of state spending goes toward healthcare and education. About 10% of total state spending goes to corrections and transportation, and the remaining one-third or so goes to different programs ranging from public assistance to environmental projects.

Local rates are often increased to pay for specific projects. For example, several cities and counties in California have raised rates in response to voter choices to increase transportation and law enforcement funding.

Read: The Major Tax Changes for 2021 You Need To Know About

Sales Tax Impacts

States with lower tax rates than surrounding states highlight these differences to attract shoppers. Delaware’s highway welcome sign, for example, uses the slogan “Home of Tax-Free Shopping” to entice motorists. In New England, merchants lure shoppers from Vermont, which imposes a 6% state sales tax rate. Whereas sales in border counties of tax-free New Hampshire have tripled since the 1950s, sales in Vermont’s border counties have remained stagnant, according to the Tax Foundation.

Some states and counties try to combat these differences on a regional basis. For example, the border county of Salem County, New Jersey is exempt from one-half of the state’s sales tax to make the county more competitive with neighboring tax-free Delaware.

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Related: How Much You’re Really Paying in Property Taxes

Why Some States Have No Sales Tax and Others Have High Sales Tax

If state sales taxes help finance state expenditures, how can some states have no sales tax at all? The answer usually lies in the state income tax rates. Oregon, for example, has no state sales tax but does have high state income taxes, with the highest bracket of 9.9%. Delaware also has high income tax, although it’s offset by low property taxes, which are based on a tax assessor’s valuation. Washington, on the other hand, has high sales tax rates, with a combined state and local tax rate of up to 9.9% for individuals who make more than $125,000 and couples who make more than $250,000, but it has no state income tax.

Some states, such as California, bear the burden of high total tax rates, with state and local combined sales tax rates as high as 10.50% and a top income tax bracket of 13.3%.

COVID-19 and Sales Tax 2021

Tax rates of all kinds are subject to change, based on state and local needs, voter preferences and the timelines established by existing legislation. Due to the COVID-19 pandemic, resulting in significant losses in sales tax collections in 2020, states such as Connecticut, Massachusetts and Vermont are holding off on sales tax increases in 2021. This has caused some retailers to add COVID-19 surcharges that they are passing on to customers. States that saw significant drops in sales tax revenue include Hawaii, with a decrease of 23%, and Nevada, which suffered a 26% loss.

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Sales tax data comes from The Sales Tax Institute. Updated as of Jan. 1, 2021.

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About the Author

John Csiszar

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.

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Sales Tax by State: Here’s How Much You’re Really Paying
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