How to add or remove sales tax from a price

Sales tax is added to the purchase price of most goods and some services at the point of sale. It is calculated as a percentage of the taxable amount, collected by the seller, and remitted to state and local governments. Understanding how it works helps you budget accurately for purchases, compare costs across locations, and avoid surprises at checkout.

How sales tax rates are determined

Sales tax in the US is set at the state level, with many states allowing cities and counties to add their own rates on top. The combined rate — state plus local — is what you actually pay. It varies significantly: states like Oregon, Montana, New Hampshire, and Delaware have no sales tax; states like Tennessee, Arkansas, and Louisiana have combined rates approaching or exceeding 10%. Most states fall between 6-9% combined. Rates can also vary by product category — groceries and prescription drugs are commonly exempt or taxed at a lower rate.

How to calculate sales tax

Multiply the pre-tax price by the tax rate expressed as a decimal. A $120 purchase at 8.5% sales tax: $120 x 0.085 = $10.20 in tax, for a total of $130.20. To work backwards from a total: divide by (1 + rate). $130.20 / 1.085 = $120. For larger purchases — furniture, electronics, vehicles — the tax amount becomes significant enough to budget for before buying, not after.

Sales tax on vehicles

Vehicle purchases are among the largest sales tax payments most people make. Rates and rules vary by state — some states tax the full vehicle price, others allow a trade-in credit, and a few cap the taxable amount. In some states, registering a vehicle bought out-of-state triggers a use tax equal to the in-state sales tax. Check your state's DMV rules before finalizing a car purchase in another state.

Use tax: the counterpart to sales tax

Use tax applies when you purchase goods from an out-of-state seller who does not collect your state's sales tax, and you bring those goods into your state for use. Most states require residents to self-report and pay use tax on these purchases. Online purchases from sellers without nexus in your state technically require use tax reporting, though enforcement for individual consumers is limited.

Sales tax deduction on federal taxes

If you itemize federal deductions, you can deduct either state income taxes paid or state sales taxes paid — not both. The sales tax deduction is most valuable for residents of states with no income tax (Florida, Texas, Nevada, Washington), where there is no income tax to deduct as an alternative. The total SALT deduction is currently capped at $10,000.

Frequently asked questions

Is sales tax the same in every city in my state?
No. Many states allow cities and counties to add their own rate on top of the state rate. The combined rate in a major city can be 1-3% higher than the base state rate, which matters for large purchases.

Do I owe sales tax on services?
It depends on the state. Most states tax tangible goods and exempt most services, but the line varies. If you are running a business and uncertain whether your service is taxable, your state's revenue department website is the authoritative source.