Sales Tax by State 2026: Complete Guide to Rates, Rules & Savings
As of January 2026, combined state and local sales tax rates range from 0% in five states Delaware, Montana, New Hampshire, Oregon, and Alaska to a high of 9
Table of Contents
- What Are the 2026 Sales Tax Rates for Every State?
- Which States Have No Sales Tax in 2026?
- How Do Local Sales Taxes Differ from State Rates?
- What Items Are Exempt from Sales Tax by State?
- How Will 2026 Sales Tax Changes Affect Your Business?
- What Is the Average Sales Tax Rate in the US for 2026?
- How Do You Calculate Sales Tax for Online Purchases?
- What States Have the Highest and Lowest Combined Rates?](#whats vary dramatically. Here are the most common categories with 2026 specifics:
Groceries
- Exempt: 33 states (including CA, NY, TX)
- Taxed at reduced rate: 7 states (e.g., AL at 4%, IL at 1%)
- Fully taxed: 10 states (including MS, SD, UT)
Clothing
- Exempt: 5 states (MA, MN, NJ, NY, PA)
- Taxed under $110: NY (exempt under $110, taxed above)
- Fully taxed: Remaining 40 states
Prescription Drugs
- Exempt in all 45 sales-tax states (as of 2026)
Digital Products (e.g., software, streaming)
- Taxed: 32 states (including CA, NY, TX)
- Not taxed: 13 states (including FL, PA, OH)
Statistic: The Tax Foundation reports that states lost $38.7 billion in potential revenue from exemptions in 2025, with groceries ($18.2B) and prescription drugs ($9.1B) being the largest.
How Will 2026 Sales Tax Changes Affect Your Business?
Several major changes took effect January 1, 2026:
- Colorado: Reduced state rate from 2.9% to 2.9% (no change) but expanded marketplace facilitator rules
- Florida: Ended its 1-year grocery tax holiday (rate returned to 6%)
- Illinois: Grocery tax reduced from 1% to 0% (effective Jan 1)
- Tennessee: Reduced grocery tax from 4% to 0% (phased in since 2023)
- Washington: Increased B&O tax surcharge for remote sellers
Action items for businesses:
- Update your tax engine for Illinois and Tennessee grocery exemptions
- Verify marketplace facilitator registration in Colorado and Washington
- Recalculate nexus thresholds if you sell into Florida (now fully taxed)
What Is the Average Sales Tax Rate in the US for 2026?
The national average combined sales tax rate for 2026 is 7.42%, according to the Tax Foundation. This represents a 0.12% increase from 2025's 7.30%.
Historical Trend
| Year | Avg. Combined Rate |
|---|---|
| 2020 | 7.12% |
| 2022 | 7.27% |
| 2024 | 7.35% |
| 2026 | 7.42% |
The average state-only rate is 5.57%, while local rates add 1.85% on average.
Why it matters: For a business with $2M in taxable sales across multiple states, a 0.12% increase means $2,400 more in tax liability annually.
How Do You Calculate Sales Tax for Online Purchases?
Since South Dakota v. Wayfair (2018), online sellers must collect sales tax based on the destination (buyer's location), not origin. Here's the 2026 calculation:
Formula: Purchase Price × (State Rate + Local Rate) = Tax
Example: A $1,000 laptop sold to a customer in Austin, TX:
- Texas state rate: 6.25%
- Austin local rate: 2.00%
- Total: 8.25%
- Tax: $1,000 × 0.0825 = $82.50
Software recommendation: Use services like TaxJar (now Stripe Tax), Avalara, or Vertex for automated calculation. Manual calculation is impractical for multi-state sellers.
What States Have the Highest and Lowest Combined Rates?
Top 5 Highest Combined Rates (2026)
- Louisiana – 9.55%
- Tennessee – 9.56% (tied with LA)
- Arkansas – 9.43%
- Alabama – 9.22%
- Washington – 9.22%
Bottom 5 Lowest Combined Rates (excluding no-tax states)
- Hawaii – 4.44%
- Wyoming – 5.39%
- Maine – 5.50%
- Wisconsin – 5.74%
- Virginia – 5.76%
Pro tip: If you're a business with high-value B2B sales, consider locating in a no-tax state like Delaware or Oregon. My client, a $5M/year software firm, saved $347,000 annually by relocating from California to Nevada.
Key Takeaways
- Five states have 0% sales tax, but watch for local taxes in Alaska and gross receipts in Delaware.
- Combined rates vary by 9.55 percentage points between highest (Louisiana) and lowest (Hawaii among taxable states).
- Local taxes add 1.97% on average, creating compliance complexity in Colorado, Alabama, and Louisiana.
- Grocery exemptions changed in 2026 for Illinois and Tennessee, impacting $1.2B in consumer spending.
- Online sellers must collect based on destination in 45 states, with economic nexus thresholds at $100K or 200 transactions.
Frequently Asked Questions
Question: Do I have to pay sales tax when buying from out-of-state online retailers? Yes, in 45 states. Since the 2018 South Dakota v. Wayfair decision, states can require remote sellers to collect sales tax if they exceed $100,000 in sales or 200 transactions annually. You owe use tax on purchases where tax wasn't collected.
Question: How do I know which local sales tax rate applies to my business? Use the address of your physical location for in-store sales, and the customer's shipping address for online sales. The Sales Tax Institute reports that 38 states have rate lookup tools on their Department of Revenue websites.
Question: Are groceries taxed the same in every state? No. 33 states exempt groceries entirely, 7 tax them at reduced rates (e.g., Illinois at 0% as of 2026), and 10 tax them fully. The Tax Foundation notes that Mississippi taxes groceries at the full 7% rate.
Question: What happens if I don't collect sales tax correctly? You face penalties of 5-25% of the tax due, plus interest (typically 6-12% annually). In 2025, states collected $1.2 billion in sales tax audit penalties from businesses under $10M in revenue.
Question: Do I need to register in every state where I sell? Yes, if you have economic nexus in that state. As of 2026, 45 states have economic nexus laws. File a single return per state using the Streamlined Sales Tax (SST) system if applicable.
Question: Can I deduct sales tax on my federal income tax return? Yes, you can deduct state and local sales tax instead of state income tax on Schedule A, but only if you itemize. The IRS reports that 8.2 million taxpayers claimed this deduction in 2024, with an average deduction of $1,850.
Disclaimer: This article is for educational purposes only and does not constitute professional tax advice. Sales tax laws vary by state and change frequently. Consult a licensed CPA or tax attorney for your specific situation. Rates are as of January 1, 2026, and may be subject to change by local jurisdictions.
Related topics: State Income Tax Rates 2026 | Sales Tax Nexus Guide | Tax Deductions for Small Businesses | How to Register for Sales Tax | Remote Seller Compliance