How Do State and Local Sales Tax Rates Work Together?
Most states set a base sales tax rate, and counties, cities, or special districts add local rates on top. The combined rate is what consumers pay. For example, a state might charge 6% while the city adds 2%, resulting in an 8% total. No two jurisdictions have the same combined rate, making compliance complex for businesses operating across state lines.
What Items Are Typically Exempt From Sales Tax?
Common exemptions include unprepared grocery food, prescription medications, and certain medical equipment. Some states exempt clothing below a price threshold. Services are generally not taxed, though many states have expanded to tax digital goods and streaming subscriptions. Tax holidays — brief periods with no sales tax on qualifying items — occur in some states before the school year.
Can You Deduct Sales Tax on Your Federal Income Tax Return?
Taxpayers who itemize may be able to deduct either state and local income taxes or state and local sales taxes — but not both — subject to the $10,000 SALT cap. The sales tax deduction is useful for residents of states with no income tax. The IRS provides tables to estimate annual sales tax paid, or taxpayers can deduct actual receipts for major purchases.
Frequently asked questions
Do I owe sales tax on online purchases?
Yes. Since the 2018 Supreme Court ruling in South Dakota v. Wayfair, states can require out-of-state online retailers to collect and remit sales tax. Most major online retailers now charge sales tax based on your delivery address.
What is use tax?
Use tax is a complementary tax owed when you buy goods from an out-of-state seller who does not collect sales tax and bring them into your state. Most states technically require you to self-report and pay use tax on such purchases on your state income tax return.