Key takeaways
- There is no federal sales tax. 45 states and DC charge a statewide sales tax; Alaska, Delaware, Montana, New Hampshire and Oregon don’t.
- For a business, sales tax on a deductible purchase is part of the cost of that item, per IRS Publication 334. On equipment, it’s added to the basis and depreciated.
- Use tax applies when you buy something taxable without paying your state’s sales tax, often from an out-of-state seller.
- Sales tax you collect from customers isn’t your money. It’s owed to the state.
What is sales tax?
Sales tax is a consumption tax charged when you buy goods, and in some states services, at retail. The seller adds it at checkout, collects it from you and sends it to the state. In the US it’s entirely a state and local tax. There is no federal sales tax.
Most of the country has one. 45 states and the District of Columbia charge a statewide sales tax. Five states don’t: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska lets local governments charge their own sales tax, so you can still see it on receipts there. On top of the state rate, many counties and cities add their own, which is why the rate can change from one town to the next.
Scan receipts and keep a record of the sales tax you paid with the Manage Receipt app.
Reading sales tax on a receipt
On a typical receipt, sales tax is the line between the subtotal and the total. Here’s what to look for:
- 1Tax flags. “T” marks taxable items; “N” marks non-taxable ones, like this gift card.
- 2Subtotal. All items before tax.
- 3Taxable amount. Only the items the tax applies to.
- 4Rate and tax. The combined state and local rate, and the tax charged: $55.98 × 8.25% = $4.62.
- 5Total. What you paid, and the amount you record.
Not every receipt shows this much detail. Some show only one tax line, and some round the rate. An itemized receipt is the easiest way to check that tax was charged on the right items.
Is sales tax deductible for businesses?
Yes, but not as a separate line. When you buy something for your business, the sales tax is part of what that thing cost you. According to IRS Publication 334:
- Supplies and everyday expenses. Include the tax in the business expense itself. The $85.60 above is the office supplies cost, not $80.98 plus a separate tax deduction.
- Equipment and other assets. Add the tax to the asset’s cost (its basis) and recover it through depreciation along with the price.
- Goods you resell. You usually don’t pay sales tax at all if you give the seller your state’s resale certificate.
Sales tax you collect from your own customers works the other way. It’s money held for the state, so keep it separate from your income and pay it on time.
For personal purchases, individuals who itemize can choose to deduct state and local sales taxes instead of state income taxes, within the overall state and local tax (SALT) cap. That mostly helps people in states with no income tax.
Use tax basics
Use tax is sales tax’s twin. If you buy something taxable and the seller doesn’t charge your state’s sales tax, you’re supposed to pay the same rate yourself as use tax. Typical cases: buying from an out-of-state seller that doesn’t collect your state’s tax, or buying in a no-tax state and bringing the item home.
Since the 2018 Supreme Court decision in South Dakota v. Wayfair, states can require large online sellers to collect tax even without a physical presence, so most online receipts now include it. Use tax still comes up with smaller sellers and some business purchases. Businesses usually report it on their state sales tax return; individuals often report it on the state income tax return.
State differences
| What varies | Examples |
|---|---|
| Rate | State rate plus county and city rates; neighboring towns can differ |
| What’s taxed | Groceries, clothing, digital products and services are taxed in some states and exempt in others |
| No statewide tax | Alaska, Delaware, Montana, New Hampshire, Oregon (Alaska allows local tax) |
| Extra local taxes | Many states and cities add separate taxes on hotels, restaurant meals or rental cars |
| Who must collect | Sellers with a physical presence or enough sales into the state |
If you buy for your business in several states, the tax line on each receipt will look different. Record the total you paid in each case. Outside the US, you’ll see VAT instead, which works differently.
The tax line, pulled out for you
When you scan a receipt, Manage Receipt extracts the sales tax amount separately from the subtotal and total. You can see what you paid in tax at a glance, spot a supplier who charged tax on a resale purchase, and still record the full cost of each item the way the IRS expects.
Explore AI Receipt ScannerFrequently asked questions
Is sales tax deductible?
For businesses, yes, as part of the cost of what you bought. Include it in the expense for supplies, or add it to the basis of equipment and depreciate it. Individuals who itemize can choose to deduct sales taxes instead of state income taxes, subject to the SALT cap.
What is use tax?
Use tax is what you owe when you buy something taxable without paying your state’s sales tax, such as from an out-of-state seller that didn’t collect it. The rate matches your sales tax. Businesses usually report it on their state sales tax return, and individuals often on their state income tax return.
Do businesses pay sales tax on purchases?
Yes, on most things they buy for their own use, such as supplies and equipment. Goods bought to resell are usually exempt if you give the seller a resale certificate. Some states also exempt certain manufacturing or farm purchases. Check your state’s rules before assuming a purchase is tax-free.
Which states have no sales tax?
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Alaska allows cities and boroughs to charge local sales tax, so some purchases there are still taxed. There is no federal sales tax anywhere in the US.