Whenever you buy something in the U.S., odds are it's going to cost more than the listed price. This is likely the result of the sales tax levied against the cost of your purchase. Sales tax is one of the ways the U.S. government collects tax revenue from its citizens.

The sales tax rate varies by the state and local government in which the purchase is made. As of Dec. 2020, 45 states, the District of Columbia, and Puerto Rico require a sales tax on many goods and some services.  According to our research, Alaska, Delaware, Guam, Montana, New Hampshire, and Oregon do not levy a statewide or territory sales tax. The tax, even when levied by a local government such as a city, is generally administered by the state.

While most states have a "general" sales tax that's used across all purchases, some items, such as tobacco, alcohol, and motor fuels, have a unique "selective" tax rate that also varies by state.

What Are Sales Taxes?

A sales tax is an involuntary fee imposed by the government on the sale of goods and services, calculated as a percentage of the price of a purchase.

For instance, if you were to buy a $15 T-shirt in Pitt County, N.C., you might expect to pay an additional $0.71, as the state's sales tax rate is 4.75% (0.0475 x 15 = 0.71). However, a state's sales tax rate only accounts for a portion of the full amount levied against a purchase, which can also include a county rate, a city rate, or an excise rate. Some locations even levy a "sin" rate on items such as cigarettes or gambling. Pitt County, in particular, levies a sales tax plus a use tax rate of 2.25%. That means the T-shirt will actually cost you an extra $1.05 above list price (0.07 x 15 = 1.05). 

All sales taxes are levied at the point of sale, after which they are passed on to the government by the collecting retailer. In most cases, sales taxes are only paid by the consumer. That's because the various manufacturers who create the products possess a resale certificate from the government. This ensures that they aren't considered an end-user.

Sales Taxes and You

When creating a monthly budget, take into account the full price of goods and/or services, including the sales tax. Additionally, if you buy something online, you're not excluded from sales tax. But you might. It depends on your local laws and whether or not the business has nexus (i.e., a physical presence) in a nearby location.

Also, should you purchase something while traveling, the ultimate price you pay will probably differ from what you might expect at home. However, when making a significantly large purchase in a different jurisdiction (on the assumption that the item in question will be used when you are back home), you may have to pay your state's used tax, which are typically set at the same rate as local sales taxes.