📖 Tax Glossary
Sales Tax
Sales tax is a tax charged on the purchase of goods (and sometimes services). It's collected by businesses at checkout and sent to state or local governments. Sales tax rates vary widely depending on where you live.
Simple definition
Sales tax is a tax you pay when you buy something. The store collects the tax from you and sends it to the government.
🛍️ What does sales tax apply to?
Sales tax usually applies to:
- Retail goods — clothing, electronics, tools, furniture, etc.
- Restaurant meals — dine-in or takeout (varies by state)
- Hotel stays — often with additional tourism taxes
- Certain service transactions — car repairs, gym memberships (varies)
💡 Some states tax more items, others tax fewer — each state writes its own rules.
✅ Common sales tax exemptions
Many states do NOT charge sales tax on:
⚠️ Rules vary: Some states tax groceries partially or fully. Others exempt clothing under certain dollar amounts.
🏛️ Who sets sales tax rates?
Sales tax rates are determined by multiple government levels:
State government
Sets base statewide rate
County government
May add county-level tax
City government
May add municipal tax
Special districts
Transportation zones, stadium districts, etc.
💡 This is why a single metro area may have dozens of different sales tax rates depending on location.
📋 Does sales tax affect your federal taxes?
Yes — but only if you itemize deductions. You can choose to deduct:
- •State income tax paid, OR
- •State and local sales tax paid
💡 Most people deduct state income tax instead of sales tax, unless they live in a no-income-tax state (like Texas, Florida, Washington, or Nevada).
📊 Visual example
Buying a TV with sales tax
Calculation:
$1,000 × 0.0825 = $82.50
💡 You pay $1,082.50 at checkout. The store keeps the $1,000 (the item price) and sends the $82.50 sales tax to state and local tax authorities.
🗺️ States without sales tax
Five states have no statewide sales tax:
Alaska
Some local sales tax
Delaware
No sales tax
Montana
Some local sales tax
New Hampshire
No sales tax
Oregon
No sales tax
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