The United States is unique among major economies in having no federal value-added tax (VAT) or national sales tax. Instead, sales tax is imposed at the state and local level, creating a patchwork of over 11,000 distinct tax jurisdictions with different rates, rules, exemptions, and filing requirements. For businesses selling goods or services across state lines, this decentralized system presents one of the most complex compliance challenges in the American tax landscape.
The 2018 Supreme Court decision in South Dakota v. Wayfair fundamentally changed sales tax obligations for online sellers by establishing that states can require businesses to collect sales tax based on economic activity alone, even without physical presence. This "economic nexus" standard means that a business selling from a home office in Oregon can have sales tax obligations in dozens of states simultaneously. Combined with marketplace facilitator laws that shift collection responsibilities for platform sellers, the sales tax environment requires careful attention from every business that sells to customers across the country.
This guide covers everything businesses need to know about US sales tax in 2026: which states impose sales tax, how rates are determined, what triggers a collection obligation, how marketplace facilitator laws work, which items are exempt, and how to manage multi-state compliance.
States with Sales Tax
Forty-five states and the District of Columbia impose a statewide sales tax. Five states have no statewide sales tax:
| State | Sales Tax Status | Local Sales Tax |
|---|---|---|
| Alaska | No state sales tax | Some localities impose sales tax (up to ~7.5%) |
| Delaware | No sales tax | None |
| Montana | No sales tax | Some resort areas impose local sales tax |
| New Hampshire | No sales tax | None (meals and rooms tax of 8.5% applies) |
| Oregon | No sales tax | None |
While these five states have no statewide sales tax, this does not mean transactions in these states are never taxed. Alaska allows local municipalities to impose their own sales taxes, which can be significant -- Juneau charges 5% and some boroughs charge more. New Hampshire imposes an 8.5% meals and rooms tax that applies to restaurants and lodging. Delaware imposes a gross receipts tax on businesses that functions differently from sales tax but adds costs that may be passed to consumers.
State Sales Tax Rates
Sales tax rates vary significantly across states. The total rate paid by consumers includes both the state rate and any applicable local (county, city, special district) taxes.
| State | State Rate | Average Local Rate | Average Combined Rate |
|---|---|---|---|
| California | 7.25% | 1.57% | 8.82% |
| Tennessee | 7.0% | 2.55% | 9.55% |
| Indiana | 7.0% | 0% | 7.0% |
| Mississippi | 7.0% | 0.07% | 7.07% |
| Rhode Island | 7.0% | 0% | 7.0% |
| Minnesota | 6.875% | 0.62% | 7.49% |
| New Jersey | 6.625% | -0.03% (urban zones) | 6.60% |
| Washington | 6.5% | 2.67% | 9.17% |
| Texas | 6.25% | 1.95% | 8.20% |
| Illinois | 6.25% | 2.57% | 8.82% |
| New York | 4.0% | 4.52% | 8.52% |
| Florida | 6.0% | 1.05% | 7.05% |
| Pennsylvania | 6.0% | 0.34% | 6.34% |
| Ohio | 5.75% | 1.49% | 7.24% |
| Georgia | 4.0% | 3.38% | 7.38% |
| Virginia | 4.3% | 1.43% | 5.73% |
| Colorado | 2.9% | 4.87% | 7.77% |
Note that states with lower state rates often have higher local rates, and vice versa. Colorado has the lowest state rate at 2.9% but has some of the highest combined rates due to extensive local taxing jurisdictions.
Understanding Nexus
Nexus is the connection between a business and a state that triggers the obligation to collect and remit sales tax. There are two types of nexus.
Physical Nexus
Physical nexus is established when a business has a tangible presence in a state. This includes:
- An office, store, warehouse, or other physical location
- Employees working in the state (even remotely)
- Inventory stored in the state (including FBA inventory in Amazon warehouses)
- Attending trade shows or events where sales are made (some states have thresholds)
- Independent contractors or sales representatives soliciting sales
- Delivering goods using company-owned vehicles
Economic Nexus
Following the 2018 Wayfair decision, most states have adopted economic nexus thresholds that require businesses to collect sales tax based on their sales volume or number of transactions in the state, regardless of physical presence.
| Threshold Type | Common Standard | States Using This Standard |
|---|---|---|
| $100,000 in sales OR 200 transactions | Most common | ~25 states |
| $100,000 in sales only (no transaction count) | Growing trend | ~20 states |
| $500,000 in sales | Higher threshold | California, New York, Texas |
| $250,000 in sales | Mid-range threshold | Select states |
Economic nexus thresholds are measured on a rolling basis, typically over the current or preceding calendar year. Once you exceed the threshold in a state, you must register for a sales tax permit and begin collecting tax on subsequent sales. The registration requirement typically begins 30 to 60 days after exceeding the threshold, though some states require immediate compliance. Failure to register once you have nexus can result in back taxes, penalties, and interest dating to when the obligation arose.
Marketplace Facilitator Laws
All states with sales tax have enacted marketplace facilitator laws that require online platforms to collect and remit sales tax on behalf of third-party sellers. The major platforms affected include:
- Amazon (including FBA sellers)
- eBay
- Etsy
- Walmart Marketplace
- Shopify (in certain configurations)
- Facebook Marketplace (for checkout-enabled listings)
If you sell through a marketplace facilitator, the platform handles sales tax collection and remittance for those transactions. You are still responsible for sales tax on sales through your own website, direct sales, and any channels not covered by marketplace facilitator laws.
Taxable vs. Exempt Items
What is subject to sales tax varies by state. The general rule is that tangible personal property is taxable and most services are exempt, but there are many exceptions.
Commonly Taxable Items
- Electronics, appliances, and consumer goods
- Furniture and home goods
- Clothing (taxable in most states, exempt in PA, NJ, NY for items under $110, and a few others)
- Prepared food and restaurant meals (taxable in most states)
- Software (tangible copies almost always taxable; SaaS varies significantly)
- Digital products (increasingly taxable; ~30 states tax digital goods)
Commonly Exempt Items
- Groceries / unprepared food (exempt in most states, taxable in ~13 states)
- Prescription medications (exempt in all states)
- Medical devices and equipment (exempt or reduced rate in most states)
- Items purchased for resale (with a valid resale certificate)
- Raw materials used in manufacturing
- Agricultural supplies and equipment
SaaS and Digital Products
The taxation of Software as a Service (SaaS) and digital products is one of the fastest-evolving areas of sales tax:
| State | SaaS Taxable? | Digital Products Taxable? |
|---|---|---|
| Texas | Yes | Yes |
| New York | Yes | Yes |
| Pennsylvania | Yes | Yes (canned software) |
| California | No (generally) | No (generally) |
| Washington | Yes (B&O tax) | Yes |
| Florida | No (as of recent changes) | Varies |
| Illinois | No | No |
SaaS taxation is a rapidly changing area. States are increasingly looking at SaaS and cloud services as a revenue source, and the rules change frequently. If your business sells SaaS products, consulting a sales tax specialist or using automated tax software (Avalara, TaxJar, or Vertex) is strongly recommended. Getting SaaS sales tax wrong can result in significant retroactive liability across multiple states.
Sales Tax Registration and Filing
Registration Process
Once you have nexus in a state, you must register for a sales tax permit before collecting tax. Registration is typically done through the state's department of revenue or taxation website. In most states, registration is free. A few states charge a small fee or require a deposit.
You can register in multiple states simultaneously using the Streamlined Sales Tax Registration System (SSTRS), which is accepted by 24 member states. For non-member states, you must register individually.
Filing Frequency
States assign filing frequency based on your expected or actual tax liability:
| Filing Frequency | Typical Threshold | Common States |
|---|---|---|
| Monthly | $300+/month in tax liability | Most states for high-volume sellers |
| Quarterly | $100-$300/month in tax liability | Most states for moderate-volume sellers |
| Annually | Under $100/month in tax liability | Most states for low-volume sellers |
| Semiannually | Varies | Select states |
Even if you owe no tax in a given period, you must still file a "zero return" in most states. Failure to file zero returns can result in penalties and estimated assessments.
Use Tax
Use tax is the complement to sales tax. It applies when a buyer purchases a taxable item from an out-of-state seller who did not collect sales tax. The buyer is responsible for remitting use tax to their home state at the same rate as the state's sales tax. In practice, individual compliance with use tax is low, but businesses are expected to self-report and remit use tax on business purchases made from out-of-state vendors.
Multi-State Compliance
Businesses selling in multiple states face significant compliance complexity. Key challenges include:
Rate Determination: With 11,000+ tax jurisdictions, determining the correct rate for each transaction requires address-level precision. A shipment to a customer in Denver faces a different rate than one a few miles away in unincorporated Arapahoe County.
Product Taxability: The same product may be taxable in one state and exempt in another. Clothing is taxable in most states but exempt in Pennsylvania. Groceries are exempt in most states but taxable in Alabama.
Filing Calendars: Each state has its own filing deadlines, forms, and electronic filing systems. A business with nexus in 20 states may need to file 20 separate returns each month or quarter.
Automation Solutions
Most businesses with multi-state sales tax obligations use automated tax calculation and filing software:
| Solution | Best For | Approximate Cost |
|---|---|---|
| TaxJar | Small to mid-size e-commerce | $19-$99/month |
| Avalara AvaTax | Mid-size to enterprise | $50-$500+/month |
| Vertex | Enterprise | Custom pricing |
| Stripe Tax | Stripe users | 0.5% per transaction |
| Shopify Tax | Shopify merchants | Included with Shopify plans |
These solutions automatically calculate the correct tax rate for each transaction, handle product taxability rules, and can automate return filing in many states.
The cost of sales tax automation software is almost always less than the cost of getting sales tax wrong. A single audit that discovers years of non-compliance in a state can result in back taxes, penalties, and interest that dwarf the cost of compliance software. Most sales tax audits look back 3 to 4 years, and some states can audit up to 7 years. If you have multi-state sales, invest in proper compliance from the beginning rather than hoping to avoid detection.
Sales Tax Holidays
Many states offer periodic sales tax holidays -- short periods (usually 2 to 3 days) when certain items are exempt from sales tax. Common categories include:
- Back-to-school: Clothing, school supplies, and computers (offered by ~18 states)
- Disaster preparedness: Generators, batteries, and emergency supplies (offered by ~7 states, primarily in hurricane-prone states)
- Energy-efficient products: Energy Star appliances and products (offered by select states)
Businesses must update their tax collection systems to properly handle sales tax holidays, which may exempt only specific categories of items below certain price thresholds.
Penalties for Non-Compliance
Sales tax penalties vary by state but generally include:
- Late filing penalties: 5% to 25% of tax due per month, depending on the state
- Late payment penalties: 10% to 25% of tax due
- Interest: Typically the federal short-term rate plus 3 to 5 percentage points, compounded
- Failure to register: Back taxes from when nexus was established, plus penalties and interest
- Fraud penalties: Up to 75% of tax due in some states
Many states offer voluntary disclosure agreements (VDAs) that allow businesses to come forward and register proactively, often limiting the look-back period and waiving penalties. If you discover that you should have been collecting sales tax in a state but were not, a VDA is usually the best path forward.
For related tax information, see our guides on corporate income tax and tax deductions for small businesses. For general business compliance requirements beyond taxation, review our business laws and compliance guide.
Frequently Asked Questions
Does the USA have a federal sales tax or VAT?
No. The United States does not have a federal sales tax or VAT. Sales tax is imposed at the state and local level. Each state sets its own rules, rates, and exemptions. Five states have no statewide sales tax: Oregon, Montana, New Hampshire, Delaware, and Alaska (though some Alaska localities impose local sales taxes). This decentralized system means businesses may need to comply with thousands of different tax jurisdictions.
What is economic nexus?
Economic nexus means a business has a sales tax obligation in a state based on its economic activity there, even without physical presence. Following the 2018 Supreme Court South Dakota v. Wayfair decision, most states adopted economic nexus thresholds, typically $100,000 in sales or 200 transactions in the state per year. Once you exceed the threshold, you must register, collect, and remit sales tax in that state.
What is a marketplace facilitator law?
Marketplace facilitator laws require online platforms like Amazon, Etsy, eBay, and Walmart Marketplace to collect and remit sales tax on behalf of third-party sellers. Most states have enacted these laws. If you sell through a marketplace facilitator, the platform handles sales tax collection for those sales. You are still responsible for sales tax on transactions through your own website or direct sales channels.
How often do I need to file sales tax returns?
Filing frequency depends on the state and your sales volume. Most states assign monthly, quarterly, or annual filing schedules. High-volume sellers typically file monthly, while lower-volume sellers may qualify for quarterly or annual filing. Some states automatically assign your frequency based on your estimated tax liability. Late filings result in penalties and interest in every state.