Sales tax is a percentage added to the purchase price of goods and services, collected by retailers and paid to the government. The formula is: Total Price = Item Price × (1 + Tax Rate). For example, a $100 item with 8% sales tax costs $100 × 1.08 = $108.

In the United States, sales tax varies by state, county, and city. Some states have no sales tax (Oregon, Montana, Delaware, New Hampshire, Alaska), while others have combined rates exceeding 10%. This creates a combined rate that includes state, county, and local taxes.

Sales tax applies differently to different products. Most states exempt groceries, prescription drugs, and sometimes clothing from sales tax. Services may or may not be taxed. Online purchases are subject to sales tax based on the delivery address in most states following the 2018 South Dakota v. Wayfair Supreme Court ruling.

Most US prices are displayed tax-exclusive (before tax), while many other countries use tax-inclusive pricing. In tax-exclusive pricing, you add the tax at checkout. A $19.99 item with 7% tax becomes $21.39. With tax-inclusive pricing common in Europe, the displayed price already includes VAT (Value Added Tax).

To find the pre-tax price from a tax-inclusive amount: Pre-Tax = Total / (1 + Tax Rate). If you paid $108 including 8% tax, the pre-tax price was $108 / 1.08 = $100.

For businesses, understanding both methods is essential for pricing strategy. Tax-inclusive pricing simplifies the customer experience but requires adjusting prices when tax rates change. Tax-exclusive pricing makes the actual price clearer but can lead to sticker shock at checkout when taxes are added.

Businesses must collect, track, and remit sales tax accurately. The taxable amount typically includes the selling price plus any shipping charges in many states. Discounts reduce the taxable amount, but coupons and manufacturer rebates may not.

Different products have different tax treatment. A restaurant might charge tax on prepared food but not on grocery items sold from the same location. Digital products have varying tax treatment by state. Knowing what's taxable in your jurisdiction prevents under-collection (which costs you money) or over-collection (which creates refund obligations).

Nexus determines where you must collect tax. Physical presence (store, office, inventory) creates nexus, but economic nexus laws now require online sellers to collect tax once they exceed sales thresholds (typically $100,000 or 200 transactions) in a state. Use this calculator to verify tax amounts and ensure accurate pricing.