State & Local Sales Tax

Sales taxes — levied by 45 states plus D.C. at the state level (Oregon, Montana, New Hampshire, Delaware, and Alaska have no statewide sales tax), with thousands of local jurisdictions adding their own rates on top — generate approximately $700 billion/year in combined state and local revenue and are the largest revenue source for many state governments, funding everything from K-12 education to transportation to Medicaid. Combined state + local rates vary from 0% (the five no-sales-tax states) to 11.525% in some Louisiana parishes — with the national average combined rate approximately 8.7%. The South Dakota v. Wayfair (2018) Supreme Court decision transformed online retail taxation: overturning the prior rule that remote sellers had no sales tax collection obligation without physical presence, the decision allowed states to require out-of-state retailers to collect and remit sales tax based on economic nexus thresholds (typically $100,000 in sales or 200 transactions/year). All 45 states with sales taxes now require online retailers to collect tax on sales into their state, effectively leveling the competitive playing field between Amazon/online retailers and brick-and-mortar stores. State sales taxes typically exempt groceries (34 states) and prescription drugs (all states), while clothing exemptions vary by state (Minnesota and Pennsylvania exempt clothing; New York exempts clothing below $110/item). High sales tax rates are regressive — consuming a larger share of income for lower-income households who spend more of their earnings — a distributional concern that drives many states to exempt food and medicine.

Current Law (2026)

45 states plus D.C. impose a state sales tax (see also state gas taxes). Local jurisdictions add additional rates in many states, and online sales are now broadly taxed following the Wayfair decision.

No State Sales Tax (5 states)

AK (local only), DE, MT, NH, OR

Highest Combined State + Local Rates

LA (~9.55%), TN (~9.55%), AR (~9.47%), WA (~9.29%), AL (~9.22%)

Lowest State Rates

CO (2.9%), AL (4%), GA (4%), HI (4%), NY (4%), WY (4%)

How It Works

The South Dakota v. Wayfair (2018) Supreme Court decision fundamentally restructured how sales taxes apply to online commerce. Before Wayfair, states could only require retailers to collect sales tax if the retailer had a physical presence in the state — meaning most online purchases went untaxed. The Court reversed that rule: states can now require any out-of-state seller to collect and remit sales tax if they meet an economic nexus threshold, typically $100,000 in annual sales or 200 transactions into the state. All 45 states with a sales tax have since enacted economic nexus standards, effectively requiring online retailers of any significant scale to collect tax everywhere they sell. For consumers, most large online purchases now arrive with sales tax automatically applied. For the roughly 3–5% of smaller online sellers who don't collect, buyers technically owe use tax at the same rate — a self-reporting obligation that has very low individual compliance but remains a legal requirement in most states.

Exemptions are where state sales tax law becomes most practically consequential for households. All 45 states exempt prescription drugs. Approximately 34 states exempt groceries (fully or partially) — but the definition of "grocery" varies, and prepared food is almost never exempt. Clothing is exempt in a handful of states, including Pennsylvania, New Jersey, Minnesota, and New York (items under $110/garment). The largest exemption debates in recent years have centered on grocery taxes: Kansas phased its grocery tax to 0% by 2025; Tennessee, Illinois, and several Southern states have debated or partially reduced theirs. For a household spending $10,000/year on groceries in a 4% tax state, full elimination saves $400/year.

Marketplace facilitator laws mean that Amazon, Etsy, eBay, Shopify, and most other large platforms automatically collect and remit sales tax on behalf of third-party sellers — which has significantly reduced the multi-state compliance burden for small online sellers. Residents of states with no income tax (Texas, Florida, Washington, Nevada, Wyoming, South Dakota, Tennessee) can elect to deduct state and local sales taxes instead of state income taxes on their federal return — choosing whichever gives a higher deduction within the SALT cap. With the SALT cap increased to $40,400 for single filers in 2026, tracking larger purchases for the IRS sales tax deduction can now be meaningful for high-spending households in no-income-tax states.

How It Affects You

If you're relocating or planning a major purchase: Sales tax is one of the most concrete financial differences between states. On a $50,000/year spending pattern, combined state + local sales tax ranges from $0 (Oregon, New Hampshire) to roughly $4,000–$4,500/year in high-rate states like Louisiana or Tennessee (~9.55% combined). A $50,000 vehicle purchase in Tennessee costs $4,775 in sales tax; in Oregon, it costs $0. If you're considering a cross-state vehicle or boat purchase, check whether sales tax applies to out-of-state sales and whether your home state will also assess use tax when you register the vehicle.

If you're a no-income-tax state resident: Residents of Florida, Texas, Nevada, Washington, Wyoming, South Dakota, and Tennessee pay no state income tax — but the SALT deduction cap matters differently for you. With no state income tax to deduct, you can choose to deduct state and local sales taxes instead on your federal return (within the SALT cap). The cap increased to $40,400 for single filers and $80,800 for married filers in 2026, making itemized deduction of sales taxes potentially worthwhile if you're a big spender in a high-rate state. Track large purchases throughout the year using the IRS optional sales tax tables or actual receipts.

If you buy from online retailers: The 2018 South Dakota v. Wayfair Supreme Court decision means that online purchases from out-of-state retailers are now generally taxed at your state's applicable rate. Most major platforms (Amazon, Etsy, eBay) automatically collect and remit sales tax as marketplace facilitators. If you buy directly from a smaller out-of-state seller that doesn't collect your state's tax, you technically owe "use tax" at the same rate — most individuals don't file use tax returns, but it remains a legal obligation.

If you're a small business selling online: Post-Wayfair, you have sales tax nexus in any state where you exceed economic thresholds — typically $100,000 in sales or 200 transactions annually. For sellers using Shopify, Etsy, Amazon, or similar platforms, the platform may handle collection and remittance on your behalf. For direct sales (your own website), you're responsible for registering, collecting, and remitting in each nexus state. The compliance burden is real: 45 states plus D.C. have sales tax, each with different rates, exemptions, and filing requirements. A sales tax automation service (TaxJar, Avalara) is worth the cost once you're selling into multiple states.

Implementing Regulations

State and local sales taxes are exclusively state and local law. No federal CFR applies. The Supreme Court's South Dakota v. Wayfair (2018) decision expanded state authority to require remote sellers to collect sales tax, reshaping the landscape for online commerce.

Pending Legislation

Marketplace fairness refinements: Ongoing adjustments to economic nexus thresholds.
Grocery tax elimination: Several states are actively debating or implementing grocery tax exemptions.
Digital services taxation: Proposals to tax digital services (streaming, cloud computing, digital advertising).

Recent Developments

Grocery tax elimination spreading: Several states have reduced or eliminated sales taxes on groceries in 2023-25. Tennessee reduced its grocery tax from 5% to 4% in 2023. Alabama, which long had a full grocery tax, debated but did not pass full elimination. Illinois exempted groceries for one year (2022) before reinstating the tax. Kansas repealed its grocery tax in 2023 (phasing to 0% by 2025). West Virginia also phased down its grocery tax. For households spending $10,000/year on groceries in a 4% tax state, elimination saves $400/year.
Wayfair implementation now mature — remote seller compliance normalized: The 2018 South Dakota v. Wayfair decision is now fully implemented across all taxing states. Most online retailers of any significant size automatically collect and remit sales tax in the states where they have economic nexus (typically $100,000/sales or 200 transactions annually). Platform marketplace collection rules (Amazon, Etsy, eBay, Shopify) mean most small online sellers no longer have to manage multi-state sales tax compliance themselves — the platform collects on their behalf.
Digital services taxes — unresolved and contested: Maryland enacted the first U.S. digital advertising services tax (on targeted advertising revenue) which has been challenged in court as discriminatory. Multiple states have proposed or considered taxes on streaming services, cloud computing, and digital advertising. The federal Internet Tax Freedom Act (ITFA) prohibits discriminatory internet access taxes but leaves ambiguity about taxes on digital goods and services. This is the fastest-evolving area of state sales tax policy.
SALT cap change affects sales tax vs. income tax deduction choice: The SALT deduction cap increase to $40,400 for 2026 (from $10,000 under original TCJA) means more taxpayers may benefit from itemizing. Residents of states with no income tax (TX, FL, WA, etc.) who previously couldn't benefit much from the SALT deduction may now find it worthwhile to track and deduct state and local sales taxes instead.