What Is the Total State and Local Sales Tax Rate?

Sales tax is a percentage-based fee added to the price of goods and services at purchase, funding public services like schools, roads, and emergency services. Unlike federal taxes, which are uniform nationwide, sales tax rates vary by location.

Because both state and local governments impose sales taxes, the total rate a consumer pays depends on multiple factors. Understanding how these levels interact helps businesses and consumers manage tax obligations effectively.

State Rate vs. Local Rate

Each state sets its own base sales tax rate, which applies to all taxable purchases. These rates differ significantly. California has the highest state-level rate at 7.25%, while Colorado’s is just 2.9%. Some states, like Oregon and New Hampshire, do not levy a statewide sales tax.

Local governments, including counties, cities, and special districts, can add their own sales taxes. These vary within states, sometimes creating significant differences between neighboring areas. Louisiana’s state sales tax is 4.45%, but local jurisdictions can add up to 7%, resulting in combined rates exceeding 11% in some areas. Chicago’s total rate is 10.25%, combining Illinois’ 6.25% state tax with county, city, and transit authority taxes.

Some states allow special taxing districts, such as transportation or public safety districts, to impose additional sales taxes. In Arizona, businesses in Maricopa County must account for the state’s 5.6% rate, county and city taxes, and transit levies. This means businesses in the same state may collect different total tax amounts depending on their location.

Taxable Transactions

Sales tax applies to many purchases, but taxability depends on state and local regulations. Tangible personal property—such as electronics, clothing, and furniture—is typically taxed at the point of sale. Digital goods, including e-books, streaming services, and software downloads, are increasingly taxed. Washington, for example, taxes digital products whether downloaded or accessed via the cloud.

Services are taxed inconsistently. Some states tax personal services like haircuts and gym memberships, while others exempt them. Professional services, such as legal or accounting assistance, are usually untaxed, but exceptions exist. South Dakota taxes most services unless specifically exempted, meaning even consulting fees may be taxable. Businesses operating in multiple states must track these variations to stay compliant.

Online and remote sales add complexity. Following the 2018 Supreme Court decision in South Dakota v. Wayfair, Inc., states can require out-of-state sellers to collect and remit sales tax even without a physical presence. Many states have since implemented economic nexus laws, setting revenue or transaction thresholds that trigger tax obligations. California, for instance, requires remote sellers to collect sales tax if they exceed $500,000 in sales to state residents. This shift has significantly impacted e-commerce businesses, requiring them to navigate varying state requirements.

Exemptions

Many states provide exemptions to lower consumer costs or support industries. Groceries are commonly exempt or taxed at a lower rate. Illinois applies a reduced 1% tax on most unprepared food items, while Minnesota and Pennsylvania exempt groceries entirely. However, definitions vary—candy and soda are often excluded from exemptions and taxed at the standard rate.

Prescription medications and medical devices are frequently exempt. Under federal law, Medicare and Medicaid purchases are not subject to state sales tax, and most states extend this exemption to all prescription drugs. Durable medical equipment, such as wheelchairs and insulin pumps, may also qualify, though some states impose additional conditions, such as requiring a doctor’s prescription. Over-the-counter medications are often taxable unless specifically exempted. In Florida, aspirin and allergy medicine are taxed, while prescription drugs are not.

Manufacturing and agricultural businesses often receive exemptions. Machinery used directly in manufacturing is typically exempt if it meets certain criteria. In Texas, equipment must be essential to production and directly contribute to creating a tangible product. Farm supplies such as seeds, fertilizer, and livestock feed are often exempt to support agriculture.

Nonprofit organizations, including charities, religious institutions, and educational groups, may qualify for exemptions. Eligibility requirements vary, but organizations generally need a tax-exempt certificate. In California, qualifying nonprofits must apply through the Franchise Tax Board and present certification when making purchases. Some states, like New York, automatically exempt certain government entities from sales tax.

Calculating the Combined Rate

Determining the total sales tax rate requires identifying all applicable taxes at the point of sale. Transportation districts, stadium authorities, and environmental protection zones can impose additional levies, significantly affecting the final tax rate. In Missouri, the Kansas City Transportation Authority adds its own tax on top of state and city rates.

The applicable tax rate depends on whether a state follows an origin-based or destination-based system. Origin-based states, like Texas, require businesses to charge the rate applicable to their location. Destination-based states, such as Florida, determine the rate based on the buyer’s address. This distinction affects companies shipping goods across jurisdictions, as incorrect tax application can lead to penalties. Some states impose hybrid rules, where different transaction types follow different sourcing methods, requiring careful tracking.

Documentation and Reporting

Proper record-keeping is essential for businesses to comply with sales tax laws. Tax authorities require documentation for taxable and exempt transactions, including invoices, receipts, and exemption certificates. Businesses must retain these records for a specified period, typically three to seven years, depending on state regulations. California mandates a minimum of four years, while Texas requires the same unless under audit, in which case records may need to be kept longer.

Filing and remitting sales tax involves periodic reports to state and local tax agencies, often on a monthly, quarterly, or annual basis, depending on revenue thresholds. Many states require electronic filing, and late submissions can result in penalties and interest charges. In New York, businesses that fail to file on time may face a penalty of up to 10% of the tax due, plus interest. Some states offer incentives for timely payments. Florida provides a collection allowance of 2.5% of the tax due, up to $30 per report, to encourage compliance. Businesses operating in multiple jurisdictions often use automated tax software to track rates, exemptions, and filing deadlines, reducing errors and ensuring accurate reporting.