In most states in the U.S., individuals are taxed on the products that they purchase. This type of tax is known as sales tax and it falls under the category of consumption taxes. A consumption tax refers to any tax that is collected on the money that is spent, not the money that is earned.

Sales taxes are used to generate revenue for states. The rate of this type of tax varies from state to state. Keep reading to learn more about sales taxes, including the states that do not collect it.

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Sales Taxes Explained
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Although most states collect sales tax, there are a few states without it. These include:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

In most stores, sales tax is not included in the marked price of an object. Instead, it is only factored in on the total purchase at checkout (it usually appears towards the bottom of paper receipts). Sales taxes can make shopping tricky because it is easy to forget that the price that you see marked on an object for sale is not the actual price you will pay. 

If you are planning a trip to another state, you can estimate what you might spend on sales tax by doing an online search for sales tax by state or search on the web for a sales tax calculator. Currently, the average sales tax across the nation is about 5.09% of the purchase price.

Some states have tax-free weeks or weekends during specific times throughout the year. For example, before children go back to school, a state may offer a tax-free weekend to help families purchase books, supplies, and other school-related necessities.

The United States is one of the only industrialized countries that still collects a traditional sales tax. Many European countries collect an ad valorem tax, which is also known as VAT. This tax is the difference between the sales price and the actual cost of producing a good or service. In this way, the ad valorem tax is a tax on the “added value” of products.

The biggest difference that you may notice between shopping in the United States and shopping in Europe is the contrast between the way VAT taxes and sales taxes are listed. VAT tax is applied to an object at each stage of production, so it is included in the final listed price of an object. This means that when you shop in most countries in Europe, the price that you see on the label is the same price that you will end up paying at checkout.

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