Woman cashing out at a shop.

Sales Tax By State: 2020 Rates

4-minute readJanuary 19, 2021

You can expect to pay many types of taxes over the course of your life, including income tax, property tax and tax on capital gains. Perhaps the one you’ll most frequently encounter is sales tax. But what is sales tax exactly? In effect, it’s a form of tax imposed by government bodies on the sale of goods and services. In addition to sales tax by state, which you’ll pay in 45 states, take note. A total of 38 states also impose a local sales tax, which is added on top of the state sales tax.

What Is Sales Tax?

Sales tax is the amount of money that you can expect to pay in addition to the cost of a product or service when it is bought at a retail location. By sales tax definition, this sum is calculated as an additional percentage added to your bill when a purchase is made. Shoppers can anticipate having to pay the combined state and local tax rate on top of their purchase at the time of sale every time they acquire these products or services. Retail businesses bear the responsibility of tracking and collecting this sales tax from shoppers, and paying it out to their state government on a recurring basis.

The specific products and services subject to sales tax vary by individual state. For example: Some states do not subject groceries, clothing and other goods to sales tax, while others do. Be sure to check with your state government to determine which sales tax rates apply to you. Note that certain types of goods – e.g. items purchased for resale to everyday consumers, or items purchased as raw materials, for which tax will be paid at the time of resale of the final product – are not subject to sales tax either. Non-profit businesses also do not pay sales tax on items which they elect to purchase.

A use tax functions in similar fashion to a sales tax, but applies to purchases made outside of a state’s tax jurisdiction. Use taxes are placed upon goods or services bought in one state that are subsequently transported to, consumed within, or resold in another state. Use taxes are generally taxed at the same rate as sales taxes, and largely exist to prevent local retailers from having to face competition from areas with lower or nonexistent sales tax rates. However, several states grant use tax credits if sales tax is paid by a purchaser in another state. Both individuals and businesses may be required to pay use taxes on transactions such as deliveries, mail order purchases, and other remote transactions.

Be advised that sales and use tax rates can change on an annual or monthly basis depending on your state.

State Versus Local Sales Tax Rate

Local governments are allowed to collect their own sales taxes in 38 states, which are used to fund various public works initiatives. These local sales taxes can approach, or even in select cases exceed, state sales tax rates, with amounts differing by jurisdiction. Even Alaska, which levies no state tax on its citizens, allows retail transactions to be subject to local sales tax. Be sure to check with your local government if you have questions regarding local sales tax rates.

States Without Sales Tax

Out of the entire United States of America, only five states have no sales tax. These states include Alaska (although the state does permit local sales taxes to be levied, as above), Delaware, Montana, New Hampshire and Oregon. If you reside within any of them, you won’t pay state sales tax, and will enjoy the benefit of having more money in your pocket.

2020 Sales Tax Rates

Wondering what your state sales tax rate is? Here, you’ll find a handy guide to current 2020 state and local sales tax rates for the rest of the United States of America. If a state has a general sales tax, the rule of thumb is that it applies a use tax as well.

 

STATE NAME

STATE SALES TAX RATE

AVG. LOCAL SALES TAX RATE

RANK – TOTAL COMBINED RATE

Alabama

4.00%

5.22%

4

Alaska

0.00%

1.76%

46

Arizona

5.60%

2.80%

11

Arkansas

6.50%

2.97%

3

California

7.25%

1.41%

9

Colorado

2.90%

4.75%

16

Connecticut

6.35%

0.00%

33

Washington DC

6.00%

0.00%

38

Florida

6.00%

1.05%

23

Georgia

4.00%

3.31%

19

Hawaii

4.00%

0.44%

45

Idaho

6.00%

0.03%

37

Illinois

6.25%

2.83%

6

Indiana

7.00%

0.00%

24

Iowa

6.00%

0.94%

27

Kansas

6.50%

2.18%

8

Kentucky

6.00%

0.00%

38

Louisiana

4.45%

5.07%

2

Maine

5.50%

0.00%

42

Massachusetts

6.25%

0.00%

35

Maryland

6.00%

0.00%

38

Michigan

6.00%

0.00%

38

Minnesota

6.88%

0.58%

18

Mississippi

7.00%

0.07%

22

Missouri

4.23%

3.96%

14

North Carolina

4.75%

2.22%

26

North Dakota

5.00%

1.86%

29

New Jersey

4.75%

2.22%

30

New Mexico

5.00%

1.86%

15

New York

4.75%

2.22%

10

Nebraska

5.00%

1.86%

28

Nevada

4.75%

2.22%

12

Ohio

5.00%

1.86%

21

Oklahoma

4.75%

2.22%

7

Pennsylvania

6.00%

0.34%

34

Rhode Island

7.00%

0.00%

24

South Carolina

6.00%

1.46%

17

South Dakota

4.50%

1.90%

32

Tennessee

7.00%

2.53%

1

Texas

6.25%

1.94%

13

Utah

6.10%

1.08%

20

Virginia

5.30%

0.35%

41

Vermont

6.00%

0.22%

36

West Virginia

6.00%

0.41%

31

Washington

6.50%

2.71%

5

Wisconsin

5.00%

0.46%

43

Wyoming

4.00%

1.34%

44

 

The Bottom Line

Citizens of most states can expect to pay sales and use taxes on the purchase or sale of retail transactions. Although these rates differ by area, for the most part, they represent a relatively small, but significant, percentage of the overall purchase amount. To find out more about the various types of taxes you may encounter, be sure to check our more articles here at Rocket HQSM

Plant Your Roots

A home is both ours and a space for family and friends. Get started today!

Apply For A Mortgage Online

NMLS #3030