The complete guide to the US sales tax | 2026

Key takeaways on sales tax in the US

• There's no federal sales tax. Each state (and often individual cities or counties within it) sets its own rate, which is why the tax on the same invoice can look different, depending on where your customer is billed from.

• Five states charge no statewide sales tax at all (Alaska, Delaware, Montana, New Hampshire, and Oregon).

• The nationwide population-weighted average combined state and local rate sits at 7.53%, but individual states range from 0% to over 10%.

• Since the 2018 South Dakota v. Wayfair ruling, you can owe sales tax in a state even without setting foot there, purely because of how much you sell into it. This is called "economic nexus."

• Most states set their economic nexus bar at $100,000 in sales, though a handful of states with larger economies (California, Texas, New York) set it as high as $500,000.

• Sales tax law was built around tangible goods changing hands. Software, cloud infrastructure, and other digital products don't fit that mold cleanly, so states are still catching up, and the rules shift more often here than almost anywhere else in tax.

• Getting this wrong doesn't always show up immediately. It usually surfaces during an audit years later, with penalties and interest stacked on top.

If we ask 10 founders what confuses them most about scaling a business across the US, sales tax will show up in most of their answers. While the concept is simple—you charge tax, you collect it, you pay it to the government—there are so many different versions running at the same time, one for nearly every state, that it gets confusing quickly.

This gets even messier for SaaS businesses, specifically, since some states tax only certain versions of a digital product while others still collect tax purely on tangible goods and leave software untouched. That's mostly a legacy consequence: sales tax law was written decades ago with tangible goods in mind, and each state is now writing its own rules for SaaS and software-related services one at a time, rather than following any shared standard.

A software company billing customers from Texas and one billing from Oregon are playing two completely different games. One collects tax on a meaningful share of its invoices. The other collects none, at least at the state level. Layer in county and city add-ons, product-specific rules, and thresholds that kick in only after you cross a certain revenue mark in a state you've never sent a single employee to, and it stops being a "simple pass-through tax" pretty quickly.

This guide walks you through what sales tax actually is, how every state's rate compares, when you're obligated to collect it beyond your home state, and what SaaS, AI, and other digital-first businesses specifically need to look out for.

What sales tax actually is (and what it isn't)

Sales tax is a consumption tax on what is spent. A business collects it at the time of sale and passes it along to the state (and sometimes the county or city) on a set schedule. The business is just the collector while the actual burden sits with the end customer.

This is different from VAT-style systems used in other countries, where tax is collected at every stage of production. In the US, sales tax is (in theory) charged only once, at the final sale to the end user. If you sell through a channel partner or reseller who then bills the end customer, you typically don't charge sales tax on that transaction to the partner, because the partner isn't the final consumer. This is where resale certificates come in, but more on that later.

There are two more terms worth knowing upfront.

• Destination-based sourcing: Tax is calculated based on where the buyer is located or receives the benefit of the product. Most states work this way.

• Origin-based sourcing: Tax is calculated based on where the seller is located. A smaller set of states, including Texas and Ohio, use this model for in-state sales.

If you're selling across state lines, this distinction affects which rate you apply and to whom.

The five states with no sales tax

Alaska, Delaware, Montana, New Hampshire, and Oregon don't levy a statewide sales tax. This group is sometimes referred to by the acronym NOMAD.

There's a catch with Alaska, though. While there's no state-level tax, the state does allow local jurisdictions to impose their own sales tax, and several do, some running as high as 7–8%. So, "Alaska has no sales tax" is true only at the state level.

The other four are cleaner. If your business operates purely within Oregon or New Hampshire, for instance, you likely never have to think about sales tax collection at all, unless you sell into other states.

State and local sales tax rates (as of 2026)

Here's where things get genuinely complicated. Some states have a modest state-level rate but let local governments stack heavy add-ons (Louisiana, Colorado, and Alabama are good examples). Others keep the state rate high and cap or restrict what localities can add (California, for instance).

According to Tax Foundation's midyear 2026 update, the five states with the highest average combined state and local sales tax rates are Louisiana, Tennessee, Washington, Arkansas, and Alabama, and the nationwide population-weighted average combined rate sits at 7.53%. On the state-level rate alone, California has the highest at 7.25%, while Colorado has the lowest non-zero rate at 2.9%.

As of July 2026,

The table is for a quick reference only. Whenever you enter a new market, it is advisable to check the relevant jurisdiction's official site for accurate and up-to-date information on any compliance matters.

Nexus: When you owe tax in a state you've never visited

This is the part that catches growing businesses off guard.

For decades, a business only had to collect sales tax in states where it had a physical presence—an office, a remote employee, or even servers and equipment it owns sitting in a data center within that state. This is called "physical nexus," and it still applies today. It's worth flagging for AI and infrastructure companies specifically: Owning or co-locating hardware in a state can itself create physical nexus, separate from anything to do with revenue.

But in 2018, the Supreme Court changed the equation. In South Dakota v. Wayfair, the court ruled that South Dakota could require an out-of-state seller to collect its sales tax purely based on the volume of business done in the state, even without a physical presence there. This is "economic nexus," and nearly every state with a sales tax adopted a version of South Dakota's model after this ruling.

In practice, this means if you sell enough into a state, you're on the hook to register, collect, and remit tax there, whether or not you've ever had a person, office, or a server physically located within its borders.

Registering to collect sales tax 

Once you determine you have nexus (physical or economic) in a state, the general sequence looks like this:

1. Register with the state's department of revenue. Nearly all states let you do this online, and most don't charge a registration fee (a few do).

2. Determine your filing frequency. States typically assign this based on your expected sales volume (monthly, quarterly, or annually). Higher volume usually means more frequent filing.

3. Set up collection at the point of sale and accounting for the correct combined rate based on the buyer's location, if the state uses destination-based sourcing.

4. File and remit by the due date, even if you had zero taxable sales that period. In some states, a "zero return" is still often required.

Missing a filing, even an empty one, can trigger penalties in several states. Building this into a recurring calendar item (or better, an automated workflow) removes a genuinely easy way to fall behind.

What's actually taxable and what isn't 

At a high level, most states built their sales tax codes around tangible personal property, physical goods changing hands, plus a specific list of enumerated services. Whether something outside that (a service, a subscription, a digital product) gets taxed depends entirely on how each state's list is written, and that list looks different everywhere.

Most states tax goods but not services by default, though a growing minority tax specific services too, and a couple (Hawaii and New Mexico, notably) apply broad-based taxes that cover many business-to-business services most other states leave alone.

That framework, built for physical goods, is exactly why digital products create so much friction.

What SaaS, AI, and other digital-first businesses need to watch for 

Here's the underlying tension. Sales tax law is old. Most of it was written when "buying something" meant a physical item changed hands. Software delivered over the internet, compute time billed by an API call, or a data platform accessed entirely in a browser doesn't fit that description, so states have spent the better part of a decade retrofitting decades-old statutes to decide whether these count as a taxable "product" at all.

There's no consensus. Each state has landed in roughly one of three places.

• Taxable, treated like tangible property or a specific enumerated service: New York takes the position that any software you access counts as a transfer of tangible personal property, taxable regardless of how it's delivered. Texas takes a slightly different route. It classifies SaaS as a data processing service. Pennsylvania, Washington, Ohio, Massachusetts, and South Carolina generally tax SaaS too, though the legal reasoning behind each state's rule differs.

• Exempt, treated as an intangible service: States like Florida and Georgia have historically held that if no tangible property ever changes hands, there's nothing to tax.

• Conditional, depending on how the software is built or delivered: Several states draw a line between "canned" software (pre-written, sold to many customers is taxable) and genuinely custom-built software (treated closer to a professional service, is often exempt). Change one contract detail, like whether you retain rights to reuse code you built for a client, and the tax treatment can flip.

Resale certificates and other exemptions 

If you're buying goods to resell (not to use yourself), you generally don't pay sales tax on that purchase. You provide the seller with a resale certificate, which documents that the goods are intended for resale and the tax will instead be collected from the end customer down the line.

Other common exemption categories include:

• Purchases by qualifying nonprofit or government entities

• Manufacturing equipment used directly in production, in many states, relevant if you build hardware or connected devices in-house

• Data center, server, or network equipment purchases, in certain states

• Items purchased for out-of-state delivery in some circumstances

Each of these has its own paperwork requirements and state-specific rules, so a certificate valid in one state doesn't automatically transfer to another.

Where businesses commonly slip up 

Assuming nexus rules stay static

States revise thresholds, drop transaction-count tests, or change what counts toward the threshold (some exclude marketplace-facilitated sales from the calculation, others don't). What was true last year for a state might not be true this year.

Applying one rate company-wide

In a destination-based state, the rate can change by county or even by zip code depending on where the customer is billed. A flat rate applied everywhere either overcharges some customers or undercharges the state, and both create problems eventually.

Treating "zero sales this quarter" as "nothing to file"

Several states expect a return regardless of if you made a sale in the state for that filing period or not.

Not revisiting product taxability after adding a new product line or pricing model

A business that starts with a single SaaS tier and later adds usage-based billing, a hardware component, or a professional services package needs to separately check whether each new revenue line is taxed the same way as the original product, because it frequently isn't.

Treating one state's ruling as a template for every state

A private letter ruling or a peer company's tax setup in one state says nothing about how a neighboring state will classify the exact same product. Each determination is specific to that state's statute.

Keeping things manageable as you scale 

It is not complicated in isolation. Register where you have nexus, collect the right rate on the right revenue line, file on time, keep your exemption paperwork current. The difficulty is doing all of that consistently across a dozen or more jurisdictions that each move on their own schedule, and for digital products specifically, each define "taxable" a little differently.

This is exactly the kind of repetitive, detail-heavy work that benefits from being built into your invoicing and billing workflow rather than tracked manually in a spreadsheet that someone updates when they remember. With Zoho Billing, you can apply the correct tax rates automatically based on where your customer is and what you're billing them for, keep a running record of exemption certificates, and generate the reports you'd need if a state ever asked you to prove your compliance history, without stitching together a separate integration just to get there.