Sales Tax

In most states, sales tax is added to items you buy.

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Confused about sales tax? We’ll make sense of the extra cents you pay for the stuff you buy.

The video game you’ve wanted is on sale for $40. You hand over two $20 bills at the register. But the cashier says you owe $42.80! Why the extra charge?

In most states, sales tax is added to items you buy. “States need to generate money, called revenue, to provide services,” says Ronald Alt, an economist with the Federation of Tax Administrators, a nonprofit organization. “They do that through taxes.” Those services include schools, fire departments, and road maintenance.

Each state decides how much sales tax to charge. Some states, such as Hawaii and New Hampshire, don’t charge sales tax. “They may have fewer government services or higher taxes for other things, such as income or property,” Alt tells Choices.

Unfortunately for shoppers, sales tax doesn’t always stop at the state level—because cities can add extra! In California, for example, the sales tax rate is 8.25 percent. But the city of San Francisco, California, adds on 1 percent, so the sales tax there is 9.25 percent.

Figuring It Out

Sales tax is calculated based on a percentage of an item’s price. A percent is a number out of 100. In this case, the percent tells you how many pennies you’ll pay in sales tax for each dollar—100 pennies—you spend. For example, in Wisconsin, the sales tax is 5 percent. That means you pay 5 cents in sales tax for every dollar you spend. So if you make a $10 purchase, a total of 50 cents in sales tax is added to the item’s cost.

Do you have to pay sales tax if you shop online? That gets tricky. State governments want online customers to pay the sales tax that their home state charges when they buy merchandise online. But for now, that tax is rarely collected.

There is other good news for customers too: Most states don’t charge sales tax for necessities such as food and medicine. And some states have special days when you can buy school supplies without being charged sales tax.

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