US Sales Tax Guide — State Rates, Exemptions, and Online Shopping Rules

## How US sales tax works Unlike VAT (collected at each stage of production), US sales tax is collected only at the final point of sale to the consumer. Businesses buy inputs tax-free (with resale certificates) and collect tax only when selling to end consumers. ## State sales tax rates (2024) **No sales tax:** Oregon, Montana, New Hampshire, Delaware, Alaska (state-level) **Lowest rates:** Colorado (2.9%), Hawaii (4%), Wyoming (4%) **Highest rates:** California (7.25%), Indiana (7%), Mississippi (7%), Rhode Island (7%) Add local rates and the combined rate can be 10%+. ## Online shopping and sales tax after Wayfair (2018) Before 2018: online retailers only collected sales tax if they had a physical presence in your state. After the Supreme Court's South Dakota v. Wayfair decision: states can require out-of-state sellers to collect sales tax based on economic nexus (e.g., 200+ transactions or $100,000+ sales in the state). Most major retailers now collect sales tax in all states that have it. ## Business sales tax compliance Businesses with nexus in a state must: 1. Register with the state's revenue department 2. Collect correct tax rates (varies by county and city) 3. File returns monthly, quarterly, or annually based on sales volume 4. Remit collected taxes on time (penalties for late filing) Software like TaxJar or Avalara automates multi-state compliance for e-commerce businesses.