Sales Tax Explained: Rates, Nexus, and the Deduction (2025)

A tax on what you spend

Sales tax is a consumption tax added at the point of purchase and collected by the seller for state and local governments. There is no federal sales tax in the United States. Rates are set locally and stack — a state rate plus county and city rates — so the total you pay varies by ZIP code, and five states levy no statewide sales tax at all.

Who pays and who collects

The buyer pays, but the seller is legally responsible for collecting and remitting the tax. For businesses this is a compliance duty: register, charge the correct rate, and file returns. Failing to remit collected sales tax is treated seriously because the money was never the business's to keep.

Nexus and online sales after Wayfair

The 2018 Supreme Court decision in South Dakota v. Wayfair let states require out-of-state online sellers to collect sales tax once they cross an economic threshold (commonly $100,000 in sales or 200 transactions). That is why nearly every online order now shows sales tax — a major shift for e-commerce sellers.

When you can deduct sales tax

On your federal return, itemizers may deduct either state and local income tax or sales tax — not both — within the $10,000 SALT cap. Choosing sales tax usually helps residents of no-income-tax states or anyone who made large taxable purchases. The IRS IRS — Sales Tax Deduction Calculator estimates your deduction, and IRS Topic No. 503, Deductible Taxes explains the rules.

Use tax: the part people forget

When you buy something without paying sales tax — say, from a seller that didn't collect it — your state may expect you to pay an equivalent use tax directly. Many state income-tax returns include a line for exactly this.