US Sales Tax: A Complete Guide for Businesses

US Sales Tax: A Complete Guide for Businesses

What is US sales tax?

The United States has no federal sales tax. Instead, 45 states (plus the District of Columbia) levy their own sales taxes at the state level, and most allow local governments — counties, cities, and special districts — to add their own rates on top. The result is over 13,000 distinct tax jurisdictions, each with different combined rates, product taxability rules, and filing requirements.

Unlike the EU's VAT system (where tax is collected at every stage of the supply chain), US sales tax is a single-stage tax collected by the seller from the end consumer at the point of sale. Businesses then remit collected tax to each state where they have nexus — either physical or economic.

The five states with no sales tax are Alaska, Delaware, Montana, New Hampshire, and Oregon. However, Alaska allows local jurisdictions to impose sales tax, so some Alaskan municipalities do levy it.

Economic nexus — what changed after Wayfair

Before 2018, a business only had to collect and remit sales tax in states where it had a physical presence (a store, warehouse, or employees). The 2018 Supreme Court decision in South Dakota v. Wayfair, Inc. changed this fundamentally.

Under Wayfair, states can require out-of-state sellers to collect and remit sales tax if the seller exceeds an economic nexus threshold in that state. Every state with a sales tax has now enacted economic nexus laws. The most common thresholds:

• $100,000 in sales into the state in the current or previous calendar year, OR
• 200 individual transactions into the state in the current or previous calendar year

Some states have higher or lower thresholds — California's threshold is $500,000 in sales with no transaction count. New York's is $500,000 in sales and more than 100 transactions. Kansas imposes economic nexus with no threshold at all.

For an e-commerce business or SaaS company selling nationally, this means you may owe sales tax in dozens of states without a single physical location there.

State-by-state sales tax rates (selected)

Combined rates include state, county, city, and special district levies. They vary by the exact buyer address, not just state.

Product exemptions by state

One of the most complex aspects of US sales tax is that product taxability varies dramatically by state. The same item can be fully taxable in one state and completely exempt in another.

Common exemption categories (but not universally applied):

• Groceries / unprepared food: Exempt in most states (California, Texas, Pennsylvania, New York), taxable in some (Alabama, Mississippi, South Dakota)
• Clothing: Exempt in Pennsylvania, New Jersey, Minnesota, New York (under $110/item); taxable in most other states
• Prescription drugs: Exempt in all 45 sales tax states
• Over-the-counter medication: Exempt in most states, taxable in some
• Digital goods / SaaS: Increasingly taxable — about 30 states now tax digital products or services, but rules vary widely
• Manufacturing equipment: Often exempt when used in production (varies by state and usage percentage)

Misclassifying a product as taxable when it is exempt, or as exempt when it is taxable, creates both customer-facing errors and potential audit liability.

SaaS and digital services

Sales tax on software-as-a-service is one of the most rapidly evolving areas of US tax law. As of 2026:

• Texas, Washington, Pennsylvania, New York: SaaS is taxable
• California: SaaS is generally not taxable (if hosted remotely)
• Florida: SaaS was added to the tax base in 2021 for B2B transactions
• Illinois: Differentiated treatment depending on whether software is custom or off-the-shelf

The rule of thumb — "software delivered electronically is not taxable" — has not been true for many years. SaaS companies with national customer bases should treat US sales tax as a live compliance obligation, not a one-time setup.

How Clearvo handles US sales tax

Clearvo calculates US sales tax via a single API call — no rate table subscription, no jurisdiction lookup service, no manual threshold tracking. Pass the seller state, buyer state, buyer city/ZIP, transaction type (B2B/B2C), and product description. Clearvo returns:

• The correct combined rate for the buyer's exact jurisdiction
• A breakdown of state, county, city, and district components
• Whether the product is taxable, exempt, or reduced in that jurisdiction
• Whether economic nexus has been triggered in the buyer's state based on your account's transaction history

{
  "seller_country": "US",
  "seller_state": "CA",
  "buyer_country": "US",
  "buyer_state": "NY",
  "buyer_city": "New York",
  "buyer_zip": "10001",
  "transaction_type": "B2C",
  "line_items": [
    {
      "description": "Laptop stand",
      "amount": 89.99,
      "currency": "USD"
    }
  ]
}

Response:

{
  "tax_rate": 0.08875,
  "tax_amount": 7.98,
  "jurisdiction": "New York City, NY",
  "breakdown": {
    "state": 0.04,
    "city": 0.045,
    "district": 0.00375
  },
  "product_category": "computer_peripherals",
  "taxable": true,
  "nexus_triggered": true
}

Getting started

Review the full API reference and test your first US sales tax calculation at clearvo.io/docs. The sandbox environment uses csk_test_* keys and does not charge real tax — use it to validate your integration before going live.

Related country guides

• Canada — GST/HST/PST by province
• Australia — GST and digital services tax
• Germany — EU VAT and XRechnung e-invoicing

Frequently asked questions

Do I need to collect US sales tax if I am based outside the US?
Yes, if you exceed the economic nexus threshold in a state. After Wayfair, physical presence is no longer required. If you sell more than $100,000 (or more than 200 transactions) into a state in a calendar year, you are required to register and collect sales tax in that state — regardless of whether your business is in the US, EU, or anywhere else.

What is destination-based vs. origin-based sourcing?
Most states use destination-based sourcing — the rate is determined by where the buyer is located. A few states (Arizona, California for intrastate sales, Illinois, Missouri, New Mexico, Ohio, Pennsylvania, Tennessee, Texas, Utah, Virginia) use origin-based sourcing for intrastate transactions — the rate is based on where the seller is located. For interstate sales, destination-based sourcing almost universally applies.

Does Clearvo handle marketplace facilitator rules?
Yes. Most states now have marketplace facilitator laws requiring platforms like Amazon, Etsy, and similar marketplaces to collect and remit tax on behalf of their sellers. If you are a marketplace (rather than a direct seller), Clearvo can identify which transactions are subject to facilitator collection rules and exclude them from your nexus liability calculation.

How does Clearvo track economic nexus thresholds?
Clearvo tracks your accumulated transaction history per state and returns a nexus_triggered: true flag once you have crossed the threshold in a given state. You can also query the nexus status for any state at any time via the API. When nexus is triggered, Clearvo automatically applies the correct rate for that state going forward.