The Sticker Shock Helper
In the US, the price on the shelf is rarely the price you pay. Sales tax varies not just by state, but by county and city. A Starbucks in downtown Chicago (10.25%) costs more than in rural Illinois (6.25%).
The 5 States with 0% Tax
Want to save 10% on a laptop? Move to (or buy in):
- Oregon
- Delaware
- Montana
- New Hampshire
- Alaska (Mostly 0%, some local cities charge).
Tax Holidays
Many states offer "Sales Tax Holidays", usually in August for "Back to School" shopping. During this weekend, clothes and school supplies are tax-free. It's the Black Friday of taxes.
Prepared Food vs Groceries
Most states do NOT tax groceries (essential). They DO tax "Prepared Food" (restaurant meals, hot rotisserie chickens).
- Bag of Bagels: No Tax (Grocery).
- Toasted Bagel with Cream Cheese: Taxed (Prepared).
- Subway Strategy: In some states (California), cold sandwiches to-go are tax-exempt, but toasted ones are taxed.
Nexus Laws (Economic Nexus)
It used to be that you only paid sales tax if the company had a "physical presence" (store/office) in your state.
The Supreme Court (Wayfair 2018) changed this. Now, if a seller does >$100k sales in your state, they have "Economic Nexus" and must collect tax. This is why your Etsy purchases are suddenly taxed.
Use Tax: The Tax You Owe But Don't Pay
If you buy something tax-free (e.g. in Oregon) and bring it home to California, you legally owe "Use Tax" (equal to sales tax) to California.
- Almost no consumer pays this voluntarily.
- Businesses are audited for this regularly. If a business buys $10k of computers tax-free, the auditor will send a bill for $800 in Use Tax.
Out of State Shipping
Thanks to the "Wayfair vs South Dakota" ruling (2018), online retailers MUST collect sales tax if they ship to your state. The days of tax-free Amazon shopping are over.
Sales Tax vs Gross Receipts Tax
Some states (like Ohio and Texas) have a "Gross Receipts Tax" instead of or in addition to corporate income tax. This is a tax on TOTAL revenue, not profit. Sales Tax is paid by the customer; Gross Receipts Tax is paid by the business.
FAQs
- Is digital software taxed?
- It depends. About 30 states tax SaaS (Netflix, Adobe). 20 states do not. It's a legislative mess.
- What is the highest tax rate?
- Combined rates in places like Tennessee, Louisiana, and Washington can exceed 10%.
- Are services taxed?
- Generally no (haircuts, legal advice), but this is changing. Some states (Hawaii, New Mexico) tax almost all services.