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Is there a tax on food? Determine grocery sales tax by state | TaxHero

Understanding the grocery tax by state is essential if you sell groceries, snacks, or beverages online. Sales tax laws vary widely across the U.S., and whether your food products are taxed depends on the state—and the type of food you’re selling.

Across the U.S., sales taxes on groceries vary. Some states fully exempt grocery items, while others charge full or reduced rates. As of April 2026, 13 states still impose a statewide sales tax on groceries.

This guide will walk you through different food categories and state-by-state grocery tax guidelines.

What Counts as Grocery Food?

When states talk about “groceries,” they typically refer to non-prepared food intended for home consumption. Most states now follow the Streamlined Sales Tax (SST) definitions to determine what is exempt:

Grocery Staples: Unprepared fruits, vegetables, meats, grains, and dairy. Most states exempt these, but some exclude “luxury” items like bottled water or soda.
Candy & Soft Drinks: Candy is a preparation of sugar, honey, or other natural or artificial sweeteners, combined with chocolate, fruits, nuts, or other ingredients or flavorings, in the form of bars, drops, or pieces.
Under SST rules, if a product contains flour or requires refrigeration, it may be classified as “food” (exempt). If it is a sugar-based confection without flour, it is “candy” (taxable).
Prepared Food: Ready for immediate consumption (hot meals, sandwiches).
- The 80/80 Rule: In states like CA and VA, if a business derives more than 80% of its revenue from food sales and more than 80% of those items are “ready-to-eat,” all items may be subject to tax.

Here’s a breakdown of commonly taxed categories:

Grocery food

Most states do not tax these items, but some still do. These are typical items found in grocery or convenience stores:

Fruits, vegetables, meats, grains, dairy
Canned goods, bottled water, packaged snacks
Non-carbonated drinks, baking ingredients

Prepackaged food

Some states tax these differently from unprocessed groceries. These are processed items ready for sale but not meant for immediate consumption:

Frozen meals
Bottled beverages
Packaged sandwiches or shelf-stable meals

Prepared food

Prepared food is ready for immediate consumption and includes:

Hot meals, salads from a bar, heated sandwiches
Items from delis, bakeries, or restaurants

Note: This guide does not cover restaurant sales tax since it’s outside the scope of grocery ecommerce.

Infographic comparing grocery, prepackaged, and prepared foods, showing that groceries are usually not taxed, prepackaged foods are sometimes taxed, and prepared foods are typically taxed.

Grocery Tax by State (2026)

The table below outlines the taxability of non-prepared grocery food by state. Most states that exempt grocery food exclude soft drinks, candy, and confections. States also charge sales tax for prepared food in restaurants and grocery stores, as it is a meal.

Of the 45 states that impose a sales tax, 13 impose a statewide sales tax on groceries.

Note: Sales tax regulations keep changing frequently. Bookmark this table to keep yourself updated about the latest developments regarding sales tax on grocery food.

Infographic image showing a US map with seller's permit costs in some states

STATE	ARE GROCERIES TAXABLE?	SALES TAX RATE	REDUCED GROCERY RATE	EXEMPTIONS (IF ANY)
Alabama	Yes	2%	–	In accordance with Act 2025-305, the state sales and use tax rate on food was reduced to 2% effective September 1, 2025.
Alaska	not applicable	0%	–	None. There is no sales tax in this state.
Arizona	No	n/a	–	Some grocery food purchases may be subject to local sales tax.
Arkansas	No	n/a	–	Arkansas has officially eliminated the state sales tax on food and groceries as of January 1, 2026. Although the state sales tax has been eliminated, local taxes remain unaffected.
California	No	n/a	–	Standard groceries exempt; 80/80 Rule applies to sales of food products sold in a form suitable for consumption on the seller’s premises.
Colorado	No	n/a	–	Carbonated water, chewing gum, cold sandwiches, plants to grow food, candy, drinks, and beverages served in unsealed cups. Although there is no state-imposed sales tax on grocery food, cities and counties may levy local sales taxes at their discretion (e.g., Denver).
Connecticut	No	n/a	–
Delaware	not applicable	0%	–	None. There is no sales tax in this state.
Florida	No	n/a	–
Georgia	No	n/a	–
Hawaii	Yes	4%	–	Food purchased with federal food coupons or vouchers is exempt.
Idaho	Yes	6%	–	Idaho residents can claim a credit (approx. $155 per person in 2026) on their income tax to offset the 6% they paid at the store.
Illinois	No (State) Yes (Local)	6.25%	–	Illinois has officially eliminated the state sales tax on food and groceries as of January 1, 2026. Although the state sales tax has been eliminated, municipalities and counties may still impose a 1% local grocery sales tax. Also, the Regional Transportation Authority Tax (RTA) of 1% remains unaffected by the state repeal.
Indiana	No	n/a	–	Starting January 1, 2025, businesses that receive 75% of their total sales from prepared food can now apply for a 50% sales tax exemption on their electric meter without a utility check.
Iowa	No	n/a	–	Food and food ingredients are exempt from Iowa sales tax. However, the following items sold for human consumption are taxable: Alcoholic beverages Candy Dietary supplements Food sold through vending machines Prepared food Soft drinks Tobacco
Kansas	Yes	6.50%	0%	Kansas has officially eliminated the state sales tax on food and groceries as of January 1, 2025. Although the state sales tax has been eliminated, local taxes remain unaffected.
Kentucky	No	n/a	–	Tobacco, alcoholic beverages, candy, prepared food, dietary supplements, soft drinks, and food sold through vending machines are not exempt.
Louisiana	No	n/a	–	Food sold for preparation and consumption at home is exempt.
Maine	No	n/a	–	The exemption is limited to “grocery staples”(i.e., vegetables, meats, fish, dairy, bread, canned and boxed food products).
Maryland	Yes	6%	–	Generally, standard groceries (unprepared food for home consumption) are not taxable in Maryland. However, a 6% sales tax applies to prepared foods, hot meals, and items sold for immediate consumption, even when purchased at a grocery store. Sales of food to patients in a hospital, on vehicles operating in interstate commerce, etc., may be exempt
Massachusetts	No	n/a	–
Michigan	No	n/a	–	Food or salad bars, bottled or canned beverages, candy bars, cookies, and potato chips are not exempt.
Minnesota	No	n/a	–
Mississippi	Yes	7%	5%	Effective July 1, 2025, Mississippi’s grocery tax dropped from 7% to 5%.
Missouri	Yes	4.225%	1.225%
Montana	not applicable	0%	–	None. There is no sales tax in this state.
Nebraska	No	n/a	–
Nevada	No	n/a	–
New Hampshire	not applicable	0%	–	None. There is no sales tax in this state.
New Jersey	No	n/a	–
New Mexico	No	n/a	–
New York	No	n/a	–	Carbonated beverages, sandwiches, confectionery, and candy are not exempt.
North Carolina	No	n/a	–	Sales of food are subject to local taxes.
North Dakota	No	n/a	–
Ohio	No	n/a	–
Oklahoma	No	n/a	–	Oklahoma has officially eliminated the state sales tax on food and groceries, effective August 29, 2024. For a detailed breakdown of what’s exempt and what’s not, check out the comprehensive list here. Although the state sales tax has been eliminated, local taxes remain unaffected. Residents may still face higher grocery taxes in the future if counties or cities decide to increase their local sales tax rates. However, under the new law, changes will not take effect until after July 1, 2026.
Oregon	not applicable	0%	–	None. There is no sales tax in this state.
Pennsylvania	No	n/a	–	It depends on the type of food and the location where the food is sold.
Rhode Island	No	n/a	–	Most grocery food items intended for home consumption are exempt from the state’s 7% sales tax. This exemption generally applies to staples, produce, meats, and dairy. However, prepared foods, hot foods, candy, soft drinks, and alcoholic beverages are taxable.
South Carolina	No	n/a	–	Unprepared food purchased with federal food stamps is exempt from state sales tax but may still be subject to local sales tax.
South Dakota	Yes	4.20%	–	A four-year tax holiday reduces South Dakota’s sales tax rate, including the tax on groceries, from 4.5% to 4.2%. As of 2026, the sales tax on groceries remains at 4.2%.
Tennessee	Yes	7%	4%	The sale of food and grocery items is taxable in Tennessee at a reduced rate of 4%. However, lawmakers are considering legislation to eliminate the grocery tax entirely. While not yet in effect as of 2026, this potential change could significantly affect statewide food taxation.
Texas	No	n/a	–	Most foods meant for human consumption are not subject to sales tax. However, certain types of food and drinks, including prepared meals, candy, soft drinks, and alcoholic beverages, do not qualify for this tax exemption and are therefore taxable.
Utah	Yes	3%	–	There’s a reduced 3% sales tax: 1.75% state, 1% local, and 0.25% county tax on groceries, while sales of prepared food are taxed at the full rate.
Vermont	No	n/a	–	Food, food products, and beverages are exempt from Vermont sales tax, except for soft drinks.
Virginia	Yes	4.30%	1%	Seeds & plants used to grow food, alcoholic beverages, and tobacco are not exempt.
Washington	No	n/a	–
West Virginia	No	n/a	–
Wisconsin	No	n/a	–	Some food snacks are excluded from this exemption.
Wyoming	No	n/a	–

*Local taxes may still apply in many states even when groceries are exempt from state-level tax.

Key Insights: States with No Food Tax (2026)

Here are some quick takeaways from the “grocery tax by states” table.

Arkansas and Illinois are the latest states to eliminate state-level grocery taxes (effective Jan 1, 2026), joining Kansas (2025).
In states like Georgia, Alabama, and Colorado, even if the state rate is low or $0, local jurisdictions can add 3-5% in additional taxes.
With recent changes, Idaho (6%) now holds the highest state-level grocery tax in the U.S.
Many states tax snacks but exempt “food.” If your product contains flour, it is often legally “food” (exempt) rather than “candy” (taxable).

State-Specific Grocery Tax Deep Dives

California: The 80/80 Rule

In California, most groceries are exempt. However, everything that you sell becomes taxable if your business meets these criteria:

80% of your revenue comes from food
80% of that food is sold in a ready-to-eat state

Illinois: The New 1% Local Mandate

While the state of Illinois officially eliminated its 1% grocery tax on January 1, 2026, it simultaneously empowered municipalities to establish their own local grocery taxes. In Chicago and most major suburbs, you will likely still see a 1% local grocery tax applied at checkout.

Texas: The Snack vs. Food Distinction

Texas does not tax groceries, but it is very strict about “snack foods.” If you sell chips, popcorn, or candy in individual-sized portions (less than 6 oz), they are taxable. If you sell the “Family Size” version of the same product, it is often exempt.

What This Means for Your Ecommerce/CPG Food Business

If you’re selling food, beverages, or snacks online, the rules on food tax vary wildly—and they change often. To stay compliant, you must:

Map your products to SST codes: Ensure you aren’t charging tax on a “snack” that qualifies as “food.”
Monitor Nexus: Selling in high-volume states like Illinois or California requires tracking local tax changes.
Automate: Manual tracking is a recipe for an audit.

Infographic image outlining three steps for ecommerce food businesses: map products to tax codes, monitor nexus across states, and automate sales tax compliance.

Frequently Asked Questions

1. What state has the highest tax on groceries?+

As of 2026, Idaho has the highest base rate for grocery tax at 6%, followed by Mississippi at 5% and Utah at 4.85%

2. Is grocery food taxed in the US?+

Most U.S. states do not impose a statewide tax on groceries. However, a few states tax groceries either at the full state sales tax rate or at a reduced rate. In some locations, additional local taxes may still apply.

3. Which US state has the cheapest groceries?+

When comparing grocery prices by location, Texas stands out. In fact, six of the eleven U.S. cities with the lowest grocery costs are located there, making it one of the most affordable states for buying groceries overall.

TaxHero Makes Grocery Sales Tax Easy

Staying compliant with sales tax on food is complicated, but TaxHero simplifies it all for you. We help ecommerce and CPG brand sellers:

Understand state-by-state tax rules
Apply correct tax rates to food items
Stay ahead of legislative changes in states
Automate tax collection and remittance across 11,000+ jurisdictions

Navigating the grocery tax by state is essential for any online food seller in 2026. By understanding which items are taxable and in which states, you can better price your products, avoid penalties, and improve customer experience.

Want clarity on your grocery sales tax setup? Book a demo call and see how we can help you manage your sales tax with confidence.

Is shipping taxable? Determine sales tax on shipping by state | TaxHero

Determining the sales tax treatment of shipping and handling can be complicated. The short answer is: the rules vary by state.

As an ecommerce seller in the US, you likely already collect sales tax from your customers for the products and services you sell. But you may question: What about shipping? Do you need to charge sales tax on shipping as well?

It’s crucial to learn how sales tax on shipping works to stay compliant in states where you have nexus. This guide will help you navigate the complex system of sales tax on shipping.

Shipping vs Handling: What’s The Difference?

Both activities involve managing taxable goods for delivery to consumers. However, there are clear distinctions between them.

Shipping involves explicit tasks, such as:

Packaging items
Transporting goods
Creating shipping labels
Selecting the shipping carrier
Tracking shipments and updating the status

Handling services, on the other hand, include activities like:

Inspecting products
Securing package safety
Sorting and organizing goods
Coordinating with shipping carriers
Assembling and labeling packages

When it comes to the taxability of these services, the rules vary by state. In some states, shipping is taxable. Meanwhile, other states may exempt such services from sales tax.

On the contrary, handling services also follow varying state sales tax rules, and their taxability often depends on whether the seller lists them separately on the invoice or bundles them with the product cost.

An infographic image showing the difference between shipping and handling

The complexity of these rules can easily confuse businesses about what is and isn’t taxable. To stay compliant, learning the fundamental rules in every state is crucial. Read on through this guide to discover everything you need to know about sales tax on shipping.

Factors That Determine Shipping Taxability

There are important factors that determine the taxability of shipping services. In general, there are 3 main aspects to consider, those are:

Destination: The buyer’s location determines the applicable tax rules.
Product Taxability: If the product is tax-exempt, shipping may be exempt as well.
Mode of Transportation: Tax rules may differ depending on whether the seller or a third-party carrier delivers the goods.
Retail Delivery Fees (RDF): A flat fee applied to every delivery that contains at least one taxable item.

Understanding the intricacies of shipping taxabilities can be difficult at first. Thus, here’s a more in-depth explanation to fully grasp the differences between these essential factors.

An infographic image showing the factors that determines shipping taxability

1. Destination

Most states determine sales tax based on the buyer’s location. A few states use origin-based rules based on the seller’s location.

However, remote interstate sales always follow destination-based rules.

Example:

You sell from Colorado, where shipping is generally not taxable.
Your customer is in Arkansas, where shipping is typically subject to tax.
Because the destination is Arkansas, the shipping charge is taxable.

Another example:

You sell from Arkansas, where shipping is usually taxable.
Your customer is in Colorado, where shipping can be exempt under certain conditions.
In this case, the shipping charge may be exempt if you meet Colorado’s requirements.

These examples show that the destination state’s rules determine whether shipping is taxable.

However, note that shipping taxability still depends on the destination state’s specific delivery rules, not just the destination.

Additional Restrictions

Specific conditions must be met for the sales tax exemption to take effect. This is crucial for cases where the destination influences the sales tax on shipping.

For example, in Colorado.

Shipping must be listed separately from the product price, and
The charge must be separable from the purchase, meaning the customer could choose another delivery option, such as pickup.

If these conditions are not met, the shipping charge becomes taxable.

In addition, Colorado also charges a Retail Delivery Fee for deliveries that include taxable goods. This fee is separate from sales tax and must appear as a separate line on the invoice.

To stay compliant with each state’s unique regulations, refer to our state-by-state table in the lower section as your guide.

2. Product Taxability

Just like the destination factor, product taxability can also complicate the sales tax on shipping. For a straightforward explanation, here’s another scenario:

You are a vendor from Arkansas, where shipping is generally subject to tax.
Your customer is also from Arkansas, but the purchased goods are exempt from the state’s sales tax. (Examples of tax-exempt goods in Arkansas are agricultural supplies, medical devices, feminine hygiene products, and more.)
Although shipping is generally taxable in Arkansas, the purchased goods are exempt from sales tax in this case. Therefore, the whole transaction (including shipping services) is excluded from sales tax.

In simpler terms, the product’s taxability may override the “destination” factor in determining sales tax on shipping services.

Each state has different rules regarding the taxation of specific products. If you’d like to know your state’s taxable and tax-exempt products, you can check our state-dedicated ultimate guides.

3. Mode of Transportation

The method used to transport goods is another important factor in determining shipping taxability.

Generally, this involves two main scenarios:

when the seller delivers the goods using their own vehicle or personnel, and
When the seller uses a third-party common carrier.

It’s critical to remember that regardless of the mode of transportation, sales tax nexus is the foundational element determining if a seller is required to collect any sales tax (including on shipping) in a particular state.

Here are various circumstances you might encounter:

Scenario 1: Seller Delivers Goods (Using Own Vehicle/Personnel)

If you are a vendor who delivers taxable goods using your own vehicle or personnel to a customer in a state where you have a sales tax nexus:

In many states, charges for delivery made by the seller’s own vehicles or employees are considered part of the overall sale of the taxable goods and are therefore typically subject to sales tax, even if separately stated. The logic is often that delivery is an integral part of making the sale.
If you do not have a sales tax nexus in your customer’s state, you are generally not required to collect sales tax on the transaction, including any delivery charges, regardless of who performs the delivery. In such cases, the customer may be responsible for paying use tax directly to their state.

Scenario 2: Third-Party Common Carrier Delivers Goods (e.g., UPS, FedEx, USPS)

If you hire a third-party common carrier (like UPS, FedEx, or USPS) to deliver your taxable goods to a customer, and you, the retailer, have a sales tax nexus in the customer’s state:

The taxability of third-party carrier shipping charges varies significantly by state.

If shipping charges are stated separately, many states may exempt the common carrier’s shipping charges from sales tax.
If the delivered goods are taxable, shipping charges may still be subject to sales tax in other states, even if stated separately. As long as the delivered goods are not exempt from sales tax, then sales tax may still apply to shipping charges.
If shipping charges are combined with handling fees, the combined charge is often subject to sales tax. This applies even in states where separately stated shipping charges might be exempt. That’s because handling fees are typically subject to sales tax in most states.
If you have a nexus in your customer’s state, regardless of your carrier’s nexus, you, the retailer, are still the one responsible for collecting sales tax from your customers. Your obligation to collect sales tax on the shipping charges (if taxable in that state) arises from your nexus with the state and the state’s rules regarding shipping.

Scenario 3: Resale Certificates and Shipping (Typically in Drop-Shipping)

A purchaser (often a retailer) uses resale certificates to buy goods for resale from a supplier without paying sales tax on that wholesale purchase. This is common in drop-shipping arrangements.

Example: You run an online store but don’t keep inventory on hand. Instead, you buy products from a third-party supplier who ships them directly to your customer.

Your transaction with your supplier: As the retailer, you give your supplier a valid resale certificate. Because of this, the supplier usually does not charge sales tax on the product or the shipping cost for that order.
Your transaction with your customer: If you have sales tax nexus in your customer’s state and the product is taxable, you must collect sales tax on the sale. Depending on the state’s rules, the tax may also apply to the shipping fee you charge your customer.
The resale certificate only applies to your purchase from the supplier, not to the final customer sale.
- NOTE:
  - If neither the retailer nor the supplier has nexus in the delivery state, the state generally does not require sales tax, and it typically does not tax shipping.
  - If the retailer has no nexus but the supplier does, the supplier may be responsible for collecting and remitting the sales tax.
  - The rules of the state where you deliver the goods ultimately determine the final obligation.

Retail Delivery Fees (RDF)

Unlike sales tax, which is a percentage of the sale, an RDF is a flat fee applied to every delivery that contains at least one taxable item. Even if a state technically exempts your shipping charge, the law may still require you to collect this fee.

Why are RDFs Different from Sales Tax

Non-Refundable: Even if a customer returns the product and you refund the sales tax, the Retail Delivery Fee is typically non-refundable because the delivery service has already occurred.
Flat Rate: It doesn’t matter if the order is $100 or $10,000; the fee remains the same per transaction.
Mandatory Line Item: Most states require this to be listed as a distinct line item on the invoice (e.g., “Road Improvement and Food Delivery Fee”).

STATE	2026 FEE AMOUNT	KEY RULES & THRESHOLDS
Colorado	$0.28	Applied to all motor vehicle deliveries. Small Business Exemption: Not required if your previous year’s CO retail sales were under $500,000.
Minnesota	$0.50	Applies only to transactions of $100 or more. Small Business Exemption: Not required if your previous year’s MN retail sales were under $1 million.
Vermont	$0.30	Effective July 1, 2026, most retail deliveries of tangible property will apply the $0.30 Retail Delivery Fee (HB 863)

Pro-Tip: Keep an eye on Nebraska and New York. Both states have active 2026 legislative sessions debating similar delivery surcharges to fund infrastructure and green transit initiatives.

The rules of the states are absolute, no matter how convoluted. To save yourself from the headache, you can skip the stress and leave the rest to TaxHero instead.

When is Sales Tax Applicable on Shipping?

The previous sections discussed the main factors that influence the taxability of shipping services. Additionally, there are other situations to be aware of to determine when sales tax applies to shipping services.

To stay tax-compliant, here are some general guidelines to keep in mind:

Taxable Items: Shipping is usually taxable when the goods being shipped are taxable. Always calculate the applicable sales tax in your transactions.
Non-Taxable Items: Shipping is typically exempt when it applies only to tax-exempt items. Ship these items separately or clearly separate them from taxable goods.
Combined Shipments: When taxable and exempt items ship together, shipping tax is often applied only to the taxable portion. Some states, however, tax the entire shipping fee.
Separate Shipping Charges: In some states, shipping is not taxable if the seller lists it separately from the item price or allows the buyer to arrange their own pickup or delivery.
Freight and Handling: Shipping (freight) may be exempt in some states, but handling fees are often taxable.
Location of the Sale: Tax rules depend on whether the state uses origin-based or destination-based sourcing.
For remote interstate sales, the destination-based rule always applies. For origin-based sales, shipping tax depends on the seller’s location and that state’s rules.

These guidelines provide a starting point, but digging deeper into the specific sales tax regulations of the states where you operate is essential to ensure accurate compliance.

State’s Guide on Sales Tax on Shipping

Here is our comprehensive guide, with a state-by-state breakdown of key details on sales tax for shipping.

STATE	IS SHIPPING TAXABLE?	EXEMPTIONS, IF ANY
Alabama	Yes	Sales tax is exempt if: The seller bills shipping charges as a separate line item from the item price, and the customer pays them either directly or indirectly and delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service
Alaska	Not applicable	There is no sales tax in this state.
Arizona	No	Sales tax is exempt if: Shipping charges are separable from the product price and stated separately
Arkansas	Yes	As of January 1, 2026, the Grocery Tax Relief Act eliminated the state-level grocery tax. Shipping for grocery staples is now exempt at the state level. However, local taxes still apply to shipping in AR unless the local jurisdiction has also repealed its specific grocery tax.
California	Yes	Sales tax is exempt if: Shipping charges don’t exceed the actual cost The seller lists shipping charges as a separate line item from the item price, and the customer pays them either directly or indirectly, and delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service
Colorado	No	Sales tax is exempt if: Exempt if separately stated. Note: Most motor vehicle deliveries are subject to the $0.28 Retail Delivery Fee.
Connecticut	Yes	Sales tax on shipping is exempt if the item is exempt.
Delaware	Not applicable	There is no sales tax in this state.
District of Columbia	Yes	Sales tax is exempt if: Delivery happens after the sale and The seller states shipping charges separately.
Florida	Yes	If shipping is mandatory (no pickup option), it is taxable. Sales tax is exempt if: Shipping is optional (i.e., the buyer is allowed to pick up the item) Shipping charges are stated separately, and customer has the option to avoid the charge (e.g., local pickup)
Georgia	Yes	Sales tax on shipping is exempt if the item is exempt.
Hawaii	Yes	Sales tax is exempt if shipments are made outside of the state.
Idaho	No	Sales tax is exempt if shipping charges are stated separately.
Illinois	No	Sales tax is exempt if: Shipping charges are separately contracted for. The buyer is allowed to pick up the purchased item and The item is exempt.
Indiana	Yes	Sales tax is exempt if delivery charges are billed and furnished by a third party.
Iowa	No	Sales tax is exempt if: Shipping charges are separately contracted for and separately stated.
Kansas	No	Beginning July 1, 2023, sales tax is exempt for delivery charges separately stated on the invoice.
Kentucky	Yes	Sales tax on shipping is exempt if the item is exempt.
Louisiana	No	Sales tax is exempt if the item is exempt.
Maine	Yes	Sales tax is exempt if: The seller bills shipping charges as a separate line item on the invoice, and the customer pays them either directly or indirectly. Delivery is by a common carrier (i.e., FedEx) or by the U.S. Postal Service, and shipment is made directly to the customer.
Maryland	No	Sales tax is exempt if shipping charges are stated separately.
Massachusetts	No	Sales tax is exempt if: Shipping costs are related to the cost of preparing and delivering goods to a location set by the buyer, shipping charges are stated separately, and The prices are set in good faith and are reasonable.
Michigan	No	Sales tax is exempt if: Shipping charges are stated separately and seller maintains records to show transactions used to determine sales tax separately. Shipping costs related to a utility’s sale of natural gas, electricity, or artificial gas are still taxable.
Minnesota	Yes	Sales tax on shipping is exempt if the item is exempt. While shipping tax rules remain in effect, most deliveries over $100 in MN now require a $0.50 Retail Delivery Fee.
Mississippi	Yes	Sales tax on shipping is exempt if the item is exempt.
Missouri	No	Shipping and handling charges in Missouri are not taxable. However, Missouri passed legislation (SB 190) that moved the state toward tighter definitions of “delivery charge”. While still largely exempt, “bundled” charges are now an audit target.
Montana	Not applicable	There is no sales tax in this state.
Nebraska	Yes	Sales tax is exempt if the buyer/customer paid the shipping charge separately from the product’s sale to the shipping carrier or delivery/freight company.
Nevada	Yes	Sales tax is exempt if: Shipping charges are stated separately from handling fees and title passes to the purchaser before shipment according to a written agreement.
New Hampshire	Not applicable	There is no sales tax in this state.
New Jersey	Yes	Sales tax is exempt if: The item is exempt and Seller allocates the sales tax on taxable goods if both tax-exempt and taxable products are shipped together. If delivery charges are not allocated, the exemption becomes invalid.
New Mexico	Yes	Sales tax is generally subject to sales tax, whether it is stated separately or included in the sale price.
New York	Yes	Sales tax is exempt if: Clothing is exempt (delivery of clothing under $110 is exempt) The customer provides a valid resale certificate. The shipping charges are separately stated charges when both taxable and non-taxable goods are shipped together, and The seller offers the delivery service independently of the sale of the taxable goods.
North Carolina	Yes	Sales tax is exempt if: The seller properly allocates shipping and handling charges between taxable and exempt items on a single invoice (based on price or weight) and The item is exempt.
North Dakota	Yes	Sales tax is exempt if: A delivery provider that is not in the sale bills the delivery charges directly to the customer, and The item is exempt.
Ohio	Yes	Sales tax is exempt if: The customer pays the delivery charge directly to the delivery company, and the seller does not charge or collect it. A combined delivery fee includes both taxable and exempt items, and the seller properly allocates the charge (by weight or price) so only the taxable portion is subject to sales tax. The item is exempt.
Oklahoma	No	Sales tax is exempt if shipping charges are stated separately.
Oregon	Not applicable	There is no sales tax in this state.
Pennsylvania	Yes	Sales tax on shipping is exempt if the item is exempt.
Rhode Island	Yes	Sales tax on shipping is exempt if the item is exempt.
South Carolina	Yes	Sales tax is exempt if: The buyer incurs the shipping charges after the title passes to them and The item is exempt
South Dakota	Yes	Sales tax on shipping is exempt if the item is exempt.
Tennessee	Yes	Sales tax on shipping is exempt if the item is exempt.
Texas	Yes	Sales tax is exempt if: The buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier, or delivery/freight company, or The item is exempt.
Utah	No	Sales tax is not exempted if shipping charges are stated separately on the invoice.
Vermont	Yes	Sales tax is exempt if: The item is exempt and The seller states the charges separately for direct mail, not for retail sales.
Virginia	No	Sales tax is exempt if shipping charges are stated separately.
Washington	Yes	Sales tax is exempt if: a third party delivers goods to the customer after the sale of the goods or item is exempt.
West Virginia	Yes	Sales tax on shipping is exempt if the item is exempt.
Wisconsin	Yes	Sales tax is exempt if: separately stated shipping charges for direct mail and not retail sales, or item is exempt.
Wyoming	No	Sales tax is exempt if shipping charges are stated separately.

Pro-Tips for 2026 Compliance

Avoid the “Bundle” Trap: Never list a single line item for “Shipping & Handling” in states like California or Illinois. Handling is almost universally taxable; bundling it with shipping can make the entire amount taxable by association.
The FBA Reality: If you sell via Amazon FBA, assume shipping is taxable in Florida and Illinois. Because there is no “pickup” option available for the end-user, these states view the shipping charge as mandatory and part of the taxable sale.
Audit-Proof Mixed Boxes: If you ship a taxable item (electronics) and an exempt item (groceries) together, you must allocate the shipping cost between them.
1. Calculation: Use the weight of the taxable items vs. the total weight to determine exactly how much shipping tax to charge. Keep this calculation on file.

Out-of-State Sales: Is Shipping Subject to Sales Tax?

Being an out-of-state seller makes identifying sales tax obligations more challenging. As previously mentioned, there’s a state-mandated law regulating the taxation of sales by businesses with sufficient economic presence. That rule is “nexus.”

Sales tax nexus is the main factor in determining whether your business is subject to sales tax obligations. When your business triggers a nexus, you must also collect sales tax on shipping charges. This rule applies whether you’re an in-state or an out-of-state company.

However, to be specific, out-of-state sellers can establish an economic nexus when selling taxable goods in another state.

The criteria for creating an economic nexus vary per state. Despite that, you only need to take note of the following factors:

In most states, the standard threshold is $100,000 in sales within the state.
Many states have eliminated the 200-transaction threshold requirement, leaving only the sales threshold as their primary criterion.
For example, Illinois officially eliminated the 200-transaction count. Remote sellers now only trigger nexus if they exceed $100,000 in gross receipts. In addition, states like North Carolina, Indiana, and Wyoming have also removed this threshold as of 2025-2026
Always check the specific requirements for each state, as thresholds can vary. For example, some states, like California, have higher sales thresholds, such as $500,000.

Once your business meets these thresholds, it becomes responsible for collecting and remitting sales tax in the state. This establishes that shipping is also taxable for out-of-state sales when your business has nexus and the state’s rules make shipping taxable for the given transaction.

But as previously discussed, the taxability of shipping varies depending on multiple factors. Simplify your experience by letting sales tax experts at TaxHero identify and manage your sales tax obligations!

Should you charge sales tax on your shipping fee?

Charging sales tax on shipping fees can be situational. In that case, here are common cases you might encounter and the relevant options you can consider:

Separately Charged Shipping: Some states exempt shipping from sales tax when sellers list it separately from the product price.
Itemized Shipping on Invoices: Clearly separating shipping from the cost of taxable goods may allow an exemption in some states. However, others still tax shipping even when itemized.
Handling Fees: Handling charges are often taxable, while shipping may or may not be taxable depending on the state.
Free Shipping Promotions: If sellers include shipping costs in the product price, sales tax may apply because authorities calculate tax on the total price.
International Sales: U.S. sales tax usually does not apply to goods shipped outside the United States. However, the buyer may still be required to pay import duties and international taxes, such as Value Added Tax (VAT) or Goods and Services Tax (GST), in the destination country.

Frequently Asked Questions

1. Does shipping get included in tax?+

In many states, the tax treatment of shipping follows the product’s taxability. If the item is taxable, the shipping charge is often taxable as well. If the item is exempt from sales tax, the shipping fee is usually exempt as well.

Some jurisdictions exempt shipping fees for taxable goods when sellers clearly itemize those charges.

2. Should I charge sales tax on shipping?+

You may need to collect sales tax on shipping charges depending on the destination state’s rules. If the state taxes shipping, especially when you bundle the charge into the product price, you should include it in the taxable amount.

3. How do I determine if shipping is taxable?+

Review the sales tax rules for the state where you deliver the order. In many cases, states tax shipping when the product itself is taxable, and the seller does not state the shipping fee separately on the invoice or receipt.

Manage Your Sales Tax in Shipping With TaxHero

Outside of these common scenarios, your business may still encounter more complex situations. To deal with those complicated cases easily, you can ship the sales tax burden to TaxHero instead.

Why worry about sales tax when a sales tax expert can handle everything for you? Speak with our CEO, Lahari Neelapareddy, to learn how we can help simplify sales tax compliance for your business!

Sales tax on digital goods complete guide and state by state rules banner showing business professional using tablet with digital tax and technology icons.

Digital goods are becoming an increasingly significant part of everyday spending, and this growth is great news for online businesses. You can sell to customers anywhere without packaging, storage, or shipping.

However, there’s a catch: sales tax rules were originally designed for physical products, and states have been scrambling to update their laws for items that are delivered electronically.

That’s why digital goods can feel confusing from a tax perspective. In one state, an ebook download might be treated like a taxable “product.” In another, it might be treated like a non-taxable “intangible.”

And in many places, the tax outcome depends on how the customer receives it. A permanent download can be taxed differently from a subscription or streaming access.

In this guide, we’ll break things down in simple terms so you can understand how sales tax applies to digital goods and why the rules can differ from state to state.

What are Digital Goods?

Digital goods are products delivered electronically rather than physically. Unlike traditional products that are shipped or handed to a customer, digital goods are accessed online and used on devices such as phones, computers, tablets, or smart TVs.

Even though these products are intangible, they still have value and are commonly bought and sold by businesses of all sizes.

When states talk about digital goods for sales tax purposes, they are usually focused on how the product is delivered and used, not just what the product is.

What counts as a digital good?

In general, a product is considered a digital good when:

It is delivered electronically rather than shipped in a physical format. This includes products downloaded to a device, accessed via login, or streamed online.
The customer uses the product digitally, such as reading, listening, watching, or interacting with it on a device, rather than owning a physical copy.

Because digital goods do not exist in physical form, states have had to decide whether and how to treat these products under existing sales tax rules.

Consuming something digitally vs owning it physically

States often draw an important distinction between digital use and physical ownership, even when the content itself is the same.

Owning a physical product means the customer receives a tangible item, such as a printed book, a CD, or a DVD. Sales tax rules for these products are usually well established.
Consuming a product digitally means the customer accesses the same content electronically, such as downloading an ebook, purchasing a digital movie file, or subscribing to a streaming service.

Even when the content is identical, the delivery method can affect how the transaction is taxed. This is one of the main reasons sales tax on digital goods by state can feel inconsistent.

Common examples of digital goods

Digital goods often include:

Music and audio files that are downloaded or accessed digitally, such as songs, albums, or audiobooks.
Ebooks and digital publications, including ebooks, digital magazines, and PDF guides.
Apps and software downloads, such as paid mobile apps or downloadable desktop programs.
Cloud-based software and SaaS tools that are accessed online through a subscription or account.
Video games and downloadable content, including full digital games and in-game add-ons.
Online courses and digital training materials are delivered through platforms or downloads.
Streaming media, such as movies, TV shows, or music accessed through streaming services.
Digital art, stock photos, videos, NFTs, and other creative digital assets.
Licenses, activation keys, templates, and virtual tickets that unlock access to software, events, or content.

Important: Not everything “digital” is taxed the same way. Many states draw a legal line between specified digital products (like ebooks, music downloads, and movie downloads) and digital services (like SaaS subscriptions, hosted platforms, and certain online training access).

Why Sales Tax Laws for Digital Goods Are So Complicated

Illustration showing a central laptop connected to multiple U.S. states, each displaying different sales tax rules for digital goods to highlight how taxability varies by state.

If you feel like digital sales tax rules are inconsistent, you’re not imagining it. The confusion usually comes from three big reasons.

Sales tax laws weren’t built for digital products

Most state sales tax laws were designed around one core idea: taxing “tangible personal property,” meaning physical items you can touch and hold. The problem is obvious: digital products don’t fit neatly into that definition, so states had to decide whether to:

Treat digital goods like taxable products anyway, or
Treat them as non-taxable intangible items, or
Create brand-new categories and rules (which some states have done).

How the Wayfair decision changed digital sales tax

A major turning point was the U.S. Supreme Court’s South Dakota v. Wayfair decision (June 21, 2018).

Before Wayfair, many businesses only had to collect sales tax in states where they had a physical presence (like an office, employees, or inventory).

After Wayfair, states could require businesses to collect sales tax based on economic nexus, which is a business connection created by sales activity in the state, even if the business never set foot there.

If you feel like digital sales tax rules are inconsistent, you’re not imagining it. The confusion usually comes from three big reasons.

States are still updating their rules

Even now, digital tax laws continue to evolve. Many states have expanded or clarified how their sales tax applies to digital products in recent years, which is why older blog posts and old assumptions can be risky.

A good example: Georgia began applying sales tax to certain digital goods starting January 1, 2024, after passing enabling legislation in 2023. This kind of change is exactly why sellers need current, state-specific guidance.

Why Digital Goods Are Taxed Differently by States

Here’s where people get tripped up. Two items can sound “digital,” but states may tax them differently depending on how they’re delivered and used.

These distinctions matter even if you’re selling something simple like ebooks or downloads.

Downloads vs. online access

States often treat these like different things:

Permanent downloads: The customer purchases a file and keeps it (e.g., downloading an ebook or buying a movie download).
Subscriptions or online access: The customer pays for access, often through a login, and may lose access if they stop paying (example: SaaS tools, membership libraries, or some digital course portals).
Streaming or temporary access: The customer watches or listens without “owning” a file, or they rent access for a limited time (example: streaming a movie or renting it for 48 hours).

Why this matters: some states are more likely to tax “digital products you purchase” than “digital services you access,” even when the customer experience feels similar.

Physical products vs digital versions (same content, different tax outcome)

It’s common for states to treat a physical product and its digital version differently.

Example:

Physical book: may be taxed normally, or may qualify for a special exemption in some states.
Ebook: could be taxable as a digital product, or not taxable as an intangible item, depending on the state.

So if you sell both print and digital formats, you cannot assume the tax rule is the same for both.

Products that are exempt physically but taxable digitally

This is one of the most surprising areas for beginners: sometimes a product is commonly exempt in one format, but taxed in another.

Common examples where formats can be treated differently:

Textbooks or educational materials: A printed book might be treated favorably in a state, while the digital version may not receive the same treatment.
Newspapers and publications: Some states treat print newspapers differently than digital subscriptions.
Certain “information products”: Reports, data, or publications can fall into special categories that vary by state.

The Streamlined Sales Tax (SST) and Digital Goods

Because sales tax rules vary so much from state to state, some states participate in an effort called the Streamlined Sales Tax Agreement, often referred to as SST.

The goal of SST is to make sales tax rules more consistent and easier for businesses to understand and follow, especially when selling across state lines.

What the Streamlined Sales Tax (SST) is

The Streamlined Sales Tax Agreement is a cooperative effort among participating states to simplify sales tax administration. States that adopt SST agree to use more uniform definitions, tax bases, and administrative processes. This helps reduce confusion for businesses that sell in multiple states, including those that sell digital products.

Not all states participate in SST, and participation does not mean all tax rules are identical. It simply provides a shared framework that some states choose to follow.

How SST defines digital products

Under SST, digital products are generally defined as products that are delivered electronically and are not tangible. This definition helps create a baseline understanding of what qualifies as a digital product, but it does not automatically determine whether that product is taxable.

Instead, SST focuses on classification, while individual states still decide taxability.

The three SST digital product categories

SST groups digital products into three main categories to help standardize how they are described:

Digital audiovisual works, which include movies, television shows, and other video content delivered electronically. These can be downloaded or streamed, depending on the product.
Digital audio works, which include music, audiobooks, and other audio content delivered digitally.
Digital books, which include ebooks and other written content delivered in digital form.

These categories help states and businesses speak the same language when discussing digital products, but they do not dictate tax outcomes.

Why SST definitions don’t guarantee tax exemption

Even when a digital product fits neatly into one of the SST categories, that does not mean it is automatically exempt from sales tax. SST allows participating states to decide whether each category is taxable, partially taxable, or exempt under their own laws.

As a result, the same digital audiobook or ebook could be taxable in one SST state and non-taxable in another.

Because states retain control over taxability, businesses still need to review each state’s rules individually. SST can reduce complexity, but it does not replace state law. Sellers must still look at how each state treats specific digital products, delivery methods, and exemptions.

Sales Tax on Digital Goods by State

Sales tax on digital goods in the U.S. is determined at the state level, which means there is no single rule that applies nationwide. Understanding how states approach digital taxability starts with knowing how to read and interpret state-level rules.

STATE	Are digital goods taxable?	Sales Tax on Digital Goods
Alabama	Yes	4%
Alaska	Yes (local only)	0%
Arizona	Yes	5.60%
Arkansas	Yes	6.50%
California	Generally No. (If the sale includes any physical item, such as a printed copy or a flash drive, the entire transaction is usually taxable.)	7.25%
Colorado	Yes	2.90%
Connecticut	Yes	6.35%
Delaware	No (no sales tax)	0%
District of Columbia	Yes	6%
Florida	No	6%
Georgia	Yes	4%
Hawaii	Yes	4%
Idaho	Yes	6%
Illinois	Yes	6.25%
Indiana	Yes	7%
Iowa	Yes	6%
Kansas	Yes	6.50%
Kentucky	Yes	6%
Louisiana	Yes	5.00%
Maine	Yes	5.50%
Maryland	Yes	6%
Massachusetts	Yes	6.25%
Michigan	Yes	6%
Minnesota	Yes	6.875%
Mississippi	Yes	7%
Missouri	No	4.225%
Montana	Yes	0%
Nebraska	Yes	5.50%
Nevada	No	6.85%
New Hampshire	No (no sales tax)	0%
New Jersey	Yes	6.625%
New Mexico	Yes	4.875%
New York	Yes	4%
North Carolina	Yes	4.75%
North Dakota	Yes	5%
Ohio	Yes	5.75%
Oklahoma	No (Oklahoma generally taxes digital goods only when they are sold together with tangible personal property.)	4.50%
Oregon	No (no sales tax)	0%
Pennsylvania	Yes	6%
Rhode Island	Yes	7%
South Carolina	Yes	6%
South Dakota	Yes	4.50%
Tennessee	Yes	7%
Texas	Yes	6.25%
Utah	Yes	4.85%
Vermont	Yes	6%
Virginia	No	4.30%
Washington	Yes	6.50%
West Virginia	Yes	6%
Wisconsin	Yes	5%
Wyoming	Yes	4%

How to read state digital tax rules

When reviewing a state’s treatment of digital goods, there are a few key factors to pay attention to:

Taxable vs non-taxable: Some states explicitly tax certain digital goods, while others exempt them or do not address them at all. In states without clear guidance, digital products may default to taxable or non-taxable depending on how the law is written.
Local tax impact: Even if a state taxes digital goods, local counties or cities may add additional sales tax. This means the total tax rate can vary within the same state.
Different digital product categories: States may tax downloads, subscriptions, and streaming services differently. A digital product being taxable does not always mean all digital formats are treated the same.

These differences are why sales tax on digital goods by state requires careful review rather than assumptions.

High-level state classification

At a broad level, states generally fall into one of three categories:

States that generally tax digital goods, meaning they have laws or guidance that treat many digital products as taxable.
States that generally do not tax digital goods, either because they exempt them or do not classify them as taxable products.
States with no general sales tax at all, which means digital goods are not subject to sales tax by default.

Understanding Nexus for Digital Goods Sellers

Knowing whether a digital good is taxable is only part of the equation. You are only required to collect sales tax in a state if you have sales tax nexus there. Nexus is what connects your business to a state and creates the obligation to register, collect, and remit sales tax.

Physical nexus

Physical nexus is created when your business has a real-world presence in a state. Even digital businesses can trigger physical nexus in ways that are easy to overlook.

Offices, employees, or inventory can establish nexus if you maintain a workspace, store inventory, or operate facilities in a state, even if digital goods are your primary product.
Remote employees can create nexus simply by working from their home in another state. A single remote employee may be enough to trigger a sales tax obligation.
Events and trade shows can also create nexus if your business regularly attends conferences, expos, or promotional events in a state, even if no direct sales occur onsite.

Economic nexus

Economic nexus focuses on your sales activity rather than physical presence. Most states adopted economic nexus rules after the Wayfair decision.

Revenue thresholds are commonly set around a specific dollar amount of sales into a state, often measured annually.
Transaction thresholds are based on the number of individual sales transactions, regardless of the dollar value of each sale.
Non-taxable sales still count toward these thresholds, meaning that even if a state does not tax digital goods, those sales can still create nexus and trigger registration requirements.

Why do digital products trigger nexus faster?

Digital sellers often reach nexus thresholds more quickly than sellers of physical goods.

Low-cost downloads can generate a high number of transactions in a short period of time.
High transaction volume means a business can cross transaction thresholds without realizing it, especially with small-priced digital items.
Marketplace involvement can complicate the nexus further, as some states have special rules for marketplace facilitators and third-party sellers of digital goods.

Common Digital Goods Sales Tax Traps

Digital goods sales tax mistakes are common, even for experienced sellers. Many of these issues stem from assumptions rather than intentional non-compliance.

Assuming “digital equals non-taxable” can lead to under-collecting tax in states that treat digital goods as taxable products.
Treating subscriptions and downloads the same is risky because many states tax permanent downloads differently from streaming or subscription access.
Ignoring local taxes can result in under-collection, especially in states where cities and counties impose additional sales tax.
Missing nexus in low-revenue states happens when sellers focus only on revenue thresholds and overlook transaction-based thresholds.
Relying on outdated guidance can create compliance gaps, as digital tax rules change frequently and older assumptions may no longer apply.

Best Practices for Handling Sales Tax on Digital Goods

While sales tax on digital goods can feel complex, following consistent best practices can significantly reduce risk and stress.

Maintain strong sales records

Accurate records are essential for determining taxability and defending your decisions during an audit.

Customer location proof helps establish where the sale took place and which state’s rules apply.
Product taxability decisions should be documented so you can explain why tax was or was not collected.
Exemption documentation is important if certain transactions qualify for exemptions under state law.
Marketplace vs direct sales records help clarify who is responsible for collecting and remitting tax.

Be transparent with customers

Clear communication helps reduce confusion and customer disputes.

Showing tax clearly at checkout makes it obvious how the final price is calculated.
Explaining why tax applies can help customers understand why digital purchases may be taxed.
Location-based rate differences should be reflected accurately to avoid over- or under-collection.

File and remit on time

Timely filing is just as important as collecting the correct amount of tax.

Penalties for late filing can add up quickly and increase total tax liability.
Audit risk often increases when filing patterns are inconsistent or incomplete.
Consistency matters because regular, accurate filings build credibility with tax authorities.

Use automation where possible

Automation can significantly reduce manual effort and human error.

Rate calculation tools help ensure the correct tax rate is applied based on location and product type.
Filing support can streamline returns across multiple states.
Nexus monitoring helps track when thresholds are met so obligations are not missed.
State registration assistance can simplify the process of becoming compliant in new jurisdictions.

Digital Goods Still Carry Real Tax Risk

Selling digital goods may feel simpler than selling physical products, but the tax rules are often just as complex. Digital does not automatically mean tax-free, and state-by-state differences play a major role in determining sales tax obligations.

As states continue updating their tax laws to reflect the digital economy, compliance requirements will keep evolving. The good news is that sales tax on digital goods is manageable with the right approach, clear records, and reliable processes.

Taking a proactive approach to understanding sales tax on digital goods by state can help businesses avoid penalties, reduce audit risk, and stay focused on growth instead of compliance issues.

If tracking nexus, taxability rules, and filing requirements across multiple states feels overwhelming, TaxHero can help simplify the process. Contact us today!

SaaS or “Software-as-a-Service” is a popular business model in today’s digitally advancing generation. However, digital advancements don’t go unseen as states keep their eye on cloud-based and SaaS businesses making sales in the USA.

So here’s the tricky part that most ecommerce businesses ask: How does sales tax apply to SaaS? The short answer is: The taxability of SaaS varies across states.

To help you understand its complexity, this comprehensive state-by-state guide provides everything you need to know about sales tax on SaaS and how businesses can stay compliant.

Key Takeaways

States tax Software-as-a-Service differently depending on how they classify it. Some states classify SaaS as an exempt service, while others classify it as a taxable digital good.
SaaS businesses should only collect sales tax once a sales tax nexus is established in a state.
Out of 50 states, 24 states, excluding NOMAD states, currently do not impose sales tax on SaaS. The District of Columbia, or Washington D.C., also applies sales tax on SaaS.

What is SaaS Sales Tax?

SaaS, short for Software-as-a-Service, is a business model providing electronic access to software. The business hosts the software in one location and offers users the option to purchase a subscription or license to access it. The SaaS provider owns, operates, and maintains the software application.

The customer only purchases access to the software through the internet and does not get ownership rights to download or modify the software application. For example, TaxHero is a SaaS-based business. Some other examples of SaaS businesses are Microsoft, Google Workspace, Slack, Adobe, and the Shopify platform.

Sales tax for SaaS businesses can be tricky and complex, as some states treat it as tangible personal property, similar to product businesses. On the other hand, some states consider it a service that may be subject to or exempt from sales tax depending on different factors. Learn more about sales tax on services in this blog.

How States Classify SaaS

The taxability of SaaS depends on how a state classifies it. In some states, they define SaaS as a service. Meanwhile, in other states, it’s classified as a digital good. Some states also tax SaaS based on usage, whether it’s for personal or commercial use.

Different states may also classify and tax Hybrid SaaS, such as Software plus Service (S+S), differently. This refers to cloud-based services combined with traditionally downloaded local files to support the service. Because of this service’s complexity, determining its taxability can be tricky unless you know each state’s specific ruling.

Which States Charge Sales Tax on SaaS?

To narrow down the complexity of SaaS sales tax, here is a state-by-state guide your business can use for reference.

STATE	IS SAAS TAXABLE?	SALES TAX RATE	SPECIFICATIONS
Alabama	No	n/a	SaaS is classified as a professional service in Alabama. Therefore, it is generally not taxable. Sales tax only applies when the seller transfers the software as the buyer’s tangible personal property. SaaS charges must be separately stated on the invoice, apart from the cost of purchasing the software’s license or subscription.
Alaska	Yes	up to 7.50% local sales tax	Alaska does not have a statewide sales tax. However, its local jurisdictions may impose sales tax on SaaS products.
Arizona	Yes	5.60%	Arizona transaction privilege tax (TPT) applies to software delivered electronically on a subscription basis, which is considered tangible personal property.
Arkansas	No	n/a	Not taxable in Arkansas if the service charges are stated separately on the invoice.
California	No	n/a	Exempt from sales tax in California if no tangible personal property is transferred to the customer.
Colorado	No	n/a	Generally exempt at the state level. However, local home rules may apply sales tax on SaaS products.
Connecticut	Yes	6.35%	SaaS is taxed at a full state sales tax rate when utilized for personal use. SaaS used by businesses (B2B) is taxed at a reduced rate of 1%.
Delaware	n/a	0%	None. There is no sales tax in Delaware.
Florida	No	n/a	SaaS is classified as an intangible service in Florida. It is taxable only when bundled with tangible personal property.
Georgia	No	n/a	Georgia classifies SaaS as a service. Generally, cloud-based software subscriptions are exempt from sales tax in Georgia.
Hawaii	Yes	4%	Hawaii’s general excise tax (GET) applies to certain goods and services, including SaaS.
Idaho	No	n/a	SaaS is not taxable in Idaho if the user has no permanent right to use the software.
Illinois	No	n/a	SaaS is generally not taxable at the state level in Illinois as long as it’s accessed remotely and no files are downloaded locally for the service to work. However, localities may impose local sales tax on SaaS. For instance, Chicago charges a 9% personal property lease transaction tax on SaaS products.
Indiana	No	n/a	Exempt if the customer has no ownership or control over the software or server.
Iowa	Yes	6%	SaaS is classified as a service in Iowa and is generally taxable when utilized for personal use. However, SaaS used for qualified commercial enterprises is exempt.
Kansas	No	n/a	SaaS is exempt from sales tax in Kansas if no ownership is transferred to the users, and they can only access the software remotely.
Kentucky	Yes	6%	Beginning January 1, 2023, SaaS is taxable in Kentucky. Services provided before the mentioned date remain exempt.
Louisiana	Yes	5%	Starting January 1, 2025, SaaS will now be taxable in the state of Louisiana. Additionally, transactions in which the customer pays a fee to use a website or software without owning it are also subject to sales tax. Digital Products (i.e., ebooks, downloadable video content, mobile apps) are also taxable.
Maine	No	n/a	SaaS is generally exempt from sales tax in Maine. However, prewritten and electronically delivered software is taxable.
Maryland	Yes	6%	SaaS purchased for personal use and delivered or obtained electronically is taxable in Maryland. Meanwhile, SaaS purchased for commercial use by an enterprise (B2B) is subject to a reduced sales tax rate of 3%.
Massachusetts	Yes	6.25%	SaaS is taxable in Massachusetts when it’s classified as prewritten software, regardless of whether it is accessed remotely or purchased as a subscription.
Michigan	No	n/a	In Michigan, SaaS is classified as a non-taxable service as long as the software is only accessible remotely.
Minnesota	No	n/a	SaaS is not taxable in Minnesota if the customer does not take ownership or possession of the software.
Mississippi	No	n/a	SaaS is not taxable in Mississippi if the software is stored on a server located outside the state. In-state hosted servers for SaaS are subject to a 7% state sales tax rate.
Missouri	No	n/a	SaaS is not taxable in Missouri if the software is exclusively delivered electronically. However, services required to maintain the software under the user’s purchase agreement are taxable.
Montana	n/a	0%	None. There is no sales tax in Montana.
Nebraska	No	n/a	SaaS is treated as a non-taxable service rather than taxable computer software in Nebraska.
Nevada	No	n/a	SaaS is not taxable in Nevada. Nevada does not consider electronically delivered software to be taxable tangible personal property.
New Hampshire	n/a	0%	None. There is no sales tax in New Hampshire.
New Jersey	No	n/a	SaaS is not taxable in New Jersey as long as it is not electronically delivered to the user. However, Software-as-a-Service businesses that meet the definition of an information service are subject to sales tax.
New Mexico	Yes	5.125%	SaaS is subject to gross receipts tax (GRT) in New Mexico. SaaS products are classified under custom or canned software and computer services.
New York	Yes	4%	SaaS is generally taxable in New York. Exceptions only apply to custom software designed specifically for one customer.
North Carolina	No	n/a	SaaS is not taxable in North Carolina as long as the software is cloud-based and only accessible remotely. However, downloadable software installed on the user’s computer is taxable.
North Dakota	No	n/a	SaaS is not taxable in North Dakota as long as the software is accessed remotely via a subscription and not delivered as tangible personal property.
Ohio	Yes	5.75%	SaaS is classified as a taxable digital service when utilized for businesses. This applies to data processing or electronic information providing software. When individuals utilize SaaS for personal use, they are exempt from sales tax when it falls under the digital service classification.
Oklahoma	No	n/a	SaaS is not taxable since it is classified as an intangible service in Oklahoma.
Oregon	n/a	0%	None. There is no sales tax in Oregon.
Pennsylvania	Yes	6%	SaaS is classified as a taxable digital product or “canned software” in Pennsylvania. Additionally, localities such as Allegheny County and Philadelphia County may apply local sales tax on SaaS, bringing the total sales tax rate to 7% or 8%, depending on the county.
Rhode Island	Yes	7%	All prewritten software, whether vendor-hosted or not, is taxable in Rhode Island.
South Carolina	Yes	6%	SaaS is classified as a taxable communications service in South Carolina.
South Dakota	Yes	4.20%	South Dakota classifies SaaS and digital products as taxable services. Local taxes may also apply.
Tennessee	Yes	7%	SaaS is classified as a taxable “remotely accessed software” (RAS) in Tennessee. Regardless of where the server hosts the software, if users access it in Tennessee, they define it as RAS.
Texas	Yes	6.25%	SaaS is 80% taxable and 20% exempt from sales tax as it is considered part of a data processing service in Texas.
Utah	Yes	4.85%	Regardless of delivery method, SaaS is classified as taxable prewritten (canned) computer software in Utah.
Vermont	Yes	6%	Beginning July 1, 2024, SaaS is now taxable in Vermont under Act 183 (H.887). Sales tax applies to SaaS regardless of delivery and accessibility method.
Virginia	No	n/a	SaaS is classified as a non-taxable service in Virginia.
Washington	Yes	6.50%	SaaS is classified as a taxable retail sale of digital service or prewritten software in Washington.
West Virginia	Yes	6%	Regardless of delivery and accessibility method, SaaS is considered a taxable service in West Virginia. However, the sales of qualified data processing services are non-taxable.
Wisconsin	No	n/a	SaaS is generally not taxable in Wisconsin. However, SaaS bundled with the transfer of tangible personal property is taxable.
Wyoming	No	n/a	SaaS is generally not taxable in Wyoming as long as the software is delivered electronically and accessed remotely. Sales tax only applies to software downloaded and installed via tangible media.

NOTE: SaaS is also taxable at the rate of 6% in the District of Columbia or Washington, D.C. By October 2026, Washington, D.C. plans to increase this rate to 7%.

Keep in mind that these rules are also subject to change at any time.

States Without SaaS Sales Tax

There are 45 states with statewide sales tax in the US, but only 24 states do not impose sales tax on SaaS as of 2026. Those states are:

List of states without sales tax on SaaS as of 2026

Aside from these 24 states, there are 5 states without sales tax in the US, also known as the NOMAD states. Those states are Alaska, Delaware, Montana, New Hampshire, and Oregon.

While Alaska does not have a statewide sales tax, local sales tax may still apply to SaaS products depending on the jurisdiction.

Why States Tax SaaS Differently

Different states tax Software-as-a-Service differently due to a variety of reasons. However, the primary factor is due to each state’s varying sales tax rules. Each state acts independently, revising its sales tax regulations periodically.

Why States are Expanding Their Sales Tax Coverage on SaaS Taxability in 2026

As mentioned in the prior section, states revise their regulations once in a while. This means that as of 2026, more states may eventually begin expanding their sales tax coverage on SaaS.

With the growing popularity of SaaS and ecommerce businesses, states need to adapt and ensure they don’t miss out on potential sales tax revenue. Therefore, the taxability of SaaS across states is subject to change at any time.

For example, in Kentucky, SaaS was exempt from sales tax until January 1, 2023.

What to Do if SaaS is Taxable?

In case you encounter a situation like Kentucky, states usually offer reasonable exceptions for businesses to adjust to new taxability rules. But if SaaS becomes taxable in a state where you operate, managing your business’s sales tax compliance is the first step to avoid penalties.

Sales Tax Compliance for SaaS

To help your SaaS business stay compliant across states, here are 7 essential SaaS compliance tips to keep in mind:

Determine the taxability – As previously mentioned, SaaS is classified differently across states. Depending on your business model, your product may or may not be taxable in a state. Check each state’s definition thoroughly.
Know your nexus – Before collecting sales tax on SaaS, check first whether you have a sales tax nexus in a state or not. You may either have a physical or economic nexus.
Maintain records – Proactively manage your transaction records and keep track of all your sales. This helps reduce future audit risks.
Track customer location and details – Understanding where your customers are located and whether they are purchasing for personal or business use is important to identify your SaaS tax liabilities across states.
Be mindful of local taxabilities – For example, in Colorado, SaaS is not taxable at the state-level. However, local home rules across Colorado jurisdictions may apply sales tax on SaaS.
Stay updated with changing rules – Sales tax rules are always subject to change, which includes the taxability of SaaS products across states. Keep up with the latest updates on sales tax rules by:
- Visiting state websites to check for new regulations
- Bookmark this blog and revisit whenever you’re in doubt
- Follow or subscribe to accounts that share updates for free (Find TaxHero on LinkedIn, X, or Facebook)
Utilize automated software – Use SaaS to solve your SaaS sales tax problems. For example, TaxHero is a SaaS business that specializes in managing sales tax. Sales tax software for ecommerce businesses offers automated services that can easily identify your liabilities and nexus in a state.
You can also take advantage of how some states offer discounted or full sales tax exemption on B2B SaaS transactions.

TaxHero helps your SaaS business stay compliant.

Complying with SaaS sales tax laws and regulations can be complex and time-consuming. TaxHero experts can simplify this job by handling all the compliance requirements. Our CEO can help walk you through our full-stack, all-inclusive sales tax services.

Frequently Asked Questions

1. What is the tax on SaaS products?+

Generally, in the US, the tax on SaaS products depends on the state’s sales tax rates. Depending on the state, SaaS products could either be taxable or non-taxable.

2. What does SaaS sales mean?+

SaaS sales generally refer to companies selling computer software that customers access remotely. This means that cloud-based or subscription-based software are examples of SaaS sales.

3. Is SaaS subject to sales tax in CO?+

Currently, as of March 2026, SaaS is not subject to sales tax at the state-level in Colorado. However, local home rules may apply sales tax to SaaS.

4. Who is the biggest SaaS company?+

The biggest SaaS company in recent years is Apple, closely followed by Microsoft and Google. Other big SaaS companies are Oracle, SAP, Salesforce, Palantir, IBM, ServiceNow, and Adobe.

5. Is SaaS sales B2B?+

SaaS sales can be both B2B (business-to-business) and B2C (business-to-consumer). Depending on the SaaS product, users can utilize it for either personal or commercial usage. For example, in some states, like Connecticut, Iowa, and Ohio, they impose sales tax on SaaS based on its usage.

Which states impose sales tax on clothing in the US? | TaxHero

Businesses dealing in clothing, whether online or not, are bound to ask: What is clothing sales tax?

Sales tax on clothes varies across states. Some states exempt them to a certain degree. Meanwhile, other states classify clothing as a necessity and therefore fully or partially exempt it from sales tax. With the complexity of clothing taxability, there are numerous specific rules and restrictions to digest.

In this guide, we’ve made everything easy for your mind to consume. Find out which clothes are taxed, the sales tax rate for clothing in each state, and which states exempt sales tax on clothing.

Key Takeaways

Most basic clothing items that are deemed necessary for daily use are generally exempt from sales tax in many states. However, the exemption can be limited, partial, or full.
Luxury apparel, such as jewelry, designer bags, and expensive clothing lines are commonly subject to sales tax or “luxury tax” in various states.
A few states offer limited exemptions on the sale of clothing, typically during their state-mandated sales tax holidays.
Online retailers are still required to collect once they establish a nexus in a taxing state, and they are selling a taxable product.
Discounted clothing can be subject to taxation, depending on the state’s rules.

What is Clothing Sales Tax?

Clothing sales tax is the tax applied to the sales of taxable clothing and specific apparel. It’s important to know that some states apply sales tax to clothes and some don’t. Depending on the state’s unique rules, the taxability of certain clothes can also vary.

This means that the application of sales tax depends on the state where you are buying or selling. For businesses, it’s crucial to know which clothing items are subject to sales tax and which are not.

Which Clothing are Subject to Sales Tax?

As mentioned above, every state has different rules when it comes to the taxability of tangible products like clothing. So, how can you tell if clothing is subject to sales tax or not? Despite the varying definitions across states, clothing items are generally recognized as either:

Luxuries or
Necessities

Typically, most states apply tax on luxury clothing, but not on necessities. However, in some cases, states set a price threshold to determine when sales tax is applied to clothing items.

For example, in New York, clothing and footwear are exempt from sales tax as long as the purchase is under $110. However, if the total sales price exceeds $110, then the entire transaction becomes taxable.

Luxury Apparel vs Essential Clothing

To further differentiate how to identify which clothing is taxable or not, understanding the difference between luxuries and necessities is a required step.

Luxury Apparel – applies to items that are generally not purchased for everyday use, such as expensive designer clothes and accessories, or garments made from fur
Essential Clothing – applies to items that are typically purchased for essential daily use, such as casual attire and undergarments that are frequently bought at affordable prices

Items that are recognized as luxuries are often subject to sales tax. Meanwhile, goods that are seen as necessities are typically exempt or taxed at a discounted rate.

But once again, the taxability of clothing still primarily varies across states.

Examples of Taxable vs Non-taxable Clothing in the U.S

Familiarizing yourself with standard clothing categories helps you identify which clothing items are commonly taxable or non-taxable. For instance, most states classify clothing under accessories, formal attire, or sports wear.

Taxable clothing examples:

Accessories: Items like jewelry, non-medically prescribed eyewear, fashionable hats, and designer handbags.
Fur garments: States that still allow manufacturing fur clothing often subject fur clothing to sales tax, even if the clothing type is exempt. As long as the item is made with fur, it typically overrides the initial sales tax exemptions.
Formal attire: Generally, clothing such as evening gowns or dresses, tuxedos, and other formal outfits tend to be subject to sales tax, regardless of whether the item is purchased or rented.
Protective gear: Safety goggles, sturdy hats, and work gloves are usually taxable.
Sports equipment: Athletic items such as arm bands, protective pads, performance fabrics, helmets, and the like are often taxable. However, some states may offer an exemption to sports wear if the state is encouraging athletic activities.

Tax-exempt clothing examples:

Uniforms: Since uniforms are often worn daily, they are recognized as necessities. Therefore, this type of clothing is typically exempt from sales tax in many states.
Religious attire: To promote religious freedom, some states may exempt religious garments from sales tax.
Essential garments: Basic apparel used for common daily activities, such as shirts, dresses, trousers, skirts, socks, undergarments, and shoes, are commonly exempt from sales tax.
Children’s clothing: Most states generally exclude children’s supplies and clothing from sales tax. However, take note that it could either be a full sales tax exemption or a partial one, depending on the state’s rules.

Despite learning about categories, price thresholds, and apparel types, checking each state’s rules is still a critical step for every clothing retailer in the U.S.

States With No Sales Tax on Clothing

As of February 2026, there are seven states that exempt necessary clothing from sales tax. Those states are:

Despite exempting basic clothing from sales tax at the state-level, keep in mind that local sales tax may still apply in some states, such as New York.

Additionally, five states have no sales tax in general. Therefore, they also do not apply tax on clothing. Those states are known asthe NOMAD states, comprised of Alaska, Delaware, Montana, New Hampshire, and Oregon.

NOTE: While Alaska does not have a statewide sales tax, its various jurisdictions are allowed to levy local taxes.

To learn more about these specific exemptions and which states apply sales tax on clothing, check out the table below.

State-by-State Guide for U.S Sales Tax on Clothing

Clothing sales tax rates vary significantly among different states. There are also variations in the sales tax exemptions on clothes in different states.

Note: Sales tax regulations keep changing frequently. Bookmark this table to keep yourself updated about the latest developments regarding sales tax on clothing.

STATE	IS CLOTHING TAXABLE?	SALES TAX RATE	EXEMPTIONS (if any)
Alabama	Yes	4%	Limited exemption during sales tax holidays
Alaska	Not applicable	0%	Alaska has no statewide sales tax. However, its jurisdictions may apply local sales tax on clothes.
Arizona	Yes	5.60%	Limited exemption during sales tax holidays.
Arkansas	Yes	6.50%	Limited exemption during sales tax holidays.
California	Yes	7.25%	Exemptions allowed for (1) new children’s clothing sold to nonprofit organizations for free distribution to elementary school children and (2) used clothing sold by certain thrift stores benefiting the chronically ill.
Colorado	Yes	2.90%	None
Connecticut	Yes	6.35%	Jewelry, handbags, designer clothing, luggage, umbrellas, and other similar items that cost more than $1,000 is subject to CT’s luxury goods tax rate of 7.75%. Exemption applies to essential clothing and footwear sold for less than $100 each.
Delaware	Not applicable	0%	There is no sales tax in Delaware. However, retailers should beware of the state’s Gross Receipts Tax (GRT).
Florida	Yes	6%	Children’s or toddlers’ clothing is exempt since July 1, 2013. Limited exemptions apply when Florida announces specific clothing exemption programs or sales tax holidays.
Georgia	Yes	4%	None
Hawaii	Yes	4%	None
Idaho	Yes	6%	Sales of clothing to nonprofit organizations whose primary function is to provide free essential clothing to the needy are exempt in Idaho.
Illinois	Yes	6.25%	None
Indiana	Yes	7%	None
Iowa	Yes	6%	Limited exemption during sales tax holidays.
Kansas	Yes	6.50%	Limited exemption during sales tax holidays.
Kentucky	Yes	6%	None
Louisiana	Yes	5.00%	Limited exemption during sales tax holidays.
Maine	Yes	5.50%	None
Maryland	Yes	6%	Limited exemption during sales tax holidays.
Massachusetts	NO	n/a	Clothing costing less than $175 are exempt from sales tax. Sales tax applies to amounts that exceed $175. For example, a $200 apparel item means the $25 is taxable as it exceeds the $175 threshold. This state has a uniform sales tax rate. Therefore, there is no local sales tax on clothing in Massachusetts.
Michigan	Yes	6%	None
Minnesota	NO	n/a	Essential clothing for daily use is generally non-taxable in Minnesota. However, accessories, most protective equipment, sports and recreational articles, and fur clothing are taxable.
Mississippi	Yes	7%	Clothing, footwear, and accessories used as wardrobes in the production of motion pictures are exempt in Mississippi. Limited exemption also applies during sales tax holidays.
Missouri	Yes	4.225%	Limited exemption during sales tax holidays.
Montana	Not applicable	0%	There is no sales tax in Montana.
Nebraska	Yes	5.50%	None
Nevada	Yes	6.85%	None
New Hampshire	Not applicable	0%	There is no sales tax in New Hampshire.
New Jersey	NO	n/a	Essential clothing for daily use is generally non-taxable in New Jersey. However, sales of fur clothing, accessories, sports, recreational, or protective equipment are taxable. Protective equipment is only exempt when purchased for the user’s daily work and worn as a work uniform.
New Mexico	Yes	4.875%	None
New York	NO	n/a	The exemption is limited to clothing and footwear costing less than $110 per item or pair. If the purchase exceeds the threshold, the entire transaction is taxable.
North Carolina	Yes	4.75%	Limited exemption during sales tax holidays
North Dakota	Yes	5%	None
Ohio	Yes	5.75%	Limited exemption during sales tax holidays
Oklahoma	Yes	4.50%	Limited exemption during sales tax holidays
Oregon	Not applicable	0%	There is no sales tax in Oregon. However, retailers should beware of the state’s Corporate Activity Tax (CAT).
Pennsylvania	NO	n/a	Essential clothing for daily use is generally non-taxable in Pennsylvania. However, luxury apparel such as accessories, fur articles, ornamental and formal wear, and sports gear is taxable.
Rhode Island	NO	n/a	Accessories and special clothing designed primarily for athletic or protective use are taxable. The exemption only applies to $250 of the sales price per item.
South Carolina	Yes	6%	Certain protective clothing required for working in a clean room environment is exempt. Additionally, a limited exemption applies during sales tax holidays
South Dakota	Yes	4.20%	A limited exemption only applies to purchases by qualified entities, such as non-profit organizations and ethnic tribes
Tennessee	Yes	7%	An exemption applies to used clothing sold by certain nonprofit organizations. However, selling used clothes along with other taxable goods invalidates the exemption.
Texas	Yes	6.25%	Limited exemption during sales tax holidays.
Utah	Yes	4.85%	None
Vermont	NO	n/a	Essential clothing for daily use is generally non-taxable in Vermont. However, luxury goods such as accessories or equipment, protective gear, and sports or recreational apparel are taxable
Virginia	Yes	4.30%	Limited exemption during sales tax holidays.
Washington	Yes	6.50%	None
West Virginia	Yes	6%	Limited exemption during sales tax holidays.
Wisconsin	Yes	5%	None
Wyoming	Yes	4%	None

Why Clothing Is Taxed Differently Across States

Clothing is taxed differently across states due to a variety of goals or reasons that the authorities may have. Typically, apparels are either taxed to generate revenue for funding state projects or exempted to support local households that are spending on essential items.

This system is not only limited to clothing, but it also applies to most goods and services that are subject to sales tax. Depending on the state, the taxability of specific items varies.

Sales Tax on Skins or Digital Apparel

Did you know? With the growing popularity of online apps, including games, even “skins” may now be taxable across states. For instance, Washington is steadily expanding its coverage of sales tax on digital goods.

This means that even digital clothing in video games and such can be subject to taxation.

Meanwhile, Pennsylvania also declared that digital products delivered electronically, digitally, or by streaming are taxable. This also includes “skins” or digital apparel.

In-game cosmetics may also be subject to sales tax depending on a state's digital tax rules

Clothing Sales Tax Holidays

Some states do not exempt tax on clothing but offer clothing sales tax holidays that may last from several days to weeks. Take note that sales tax holidays vary annually.

Most clothing tax holidays happen from July to August for the back-to-school season. Here’s the list of states offering 2026 tax breaks specifically for clothing:

Alabama (Back-to-School): Clothing ($156 or less/item)
Alaska (Tax-Free Holiday): Most items are exempt
Arkansas (Back-to-School): Clothing and footwear ($100/item or less) and accessories or equipment ($50/item or less)
Connecticut (Back-to-School): Clothing and footwear ( $100 or less), accessories, and protective or athletic clothing are not included in this exemption
Florida (Back-to-School): Clothing, wallets, and bags (up to $100)
Iowa (Back-to-School): Clothing and footwear (less than $100)
Maryland (Back-to-School): Clothing and footwear ($100/item or less) and backpacks (only the first $40)
Massachusetts (Annual Tax Holiday): Tangible Personal Property (up to $2,500)
Mississippi (Back-to-School): Clothing and footwear (less than $100)
Missouri (Back-to-School): Clothing (less than $100)
New Mexico (Back-to-School): Clothing and shoes ($100/item or less) and book bags, backpacks, maps, and globes (less than $100 per item). Retailers are not required to participate.
Oklahoma (Back-to-School): Clothing and footwear (less than $100), excluding non-essential apparel
South Carolina (Back-to-School): Clothing, footwear, and clothing accessories
Tennessee (Back-to-School): Clothing and shoes ($100/item or less)
Texas (Back-to-School): Clothing and footwear (less than $100) and backpacks, excluding non-essential apparel
Virginia (Three-Day Sales Tax Holiday): Qualified exempt clothing and footwear (less than $100/item)
West Virginia (Back-to-School): Clothing (less than $125) and sports equipment (less than $150)

NOTE: Sales tax holiday dates and timeframe are subject to change. Bookmark this blog to stay up-to-date with the latest tax breaks for clothing exemptions!

How to Calculate Sales Tax on Clothing?

There are different ways to calculate sales tax on clothing, but for starters, here’s how you can do it yourself.

First, list the price of the taxable product, including any taxable shipping charges. After that, take the state’s combined sales tax rate, depending on where you are. Then, convert the state’s combined rate into decimal format.

Once you convert the rate into decimal format, multiply the product’s price by the decimal format. The result is your estimated sales tax for that transaction.

Here’s the simplified formula breakdown:

Price of Goods + Shipping Fee x
State Sales Tax Rates +
Local Sales Tax Rates
= Your Total Sales Tax

Example Scenario:

The taxable clothing product is worth $60 and was purchased in Conway, Arkansas, where clothing is taxable.
The combined state, county, city, and other local sales tax rates in Conway, Arkansas, are currently at 8.75%.
Convert the state’s combined sales tax rate into decimal format. 8.75% turned into decimal format is: 0.0875
Now, multiply the sale price by the decimal format of the combined sales tax rate of the city, county, and state.
60 x 0.0875 is = $5.25
Finally, add everything to the base sales price to accurately determine the sales tax on the taxable apparel.
[Product Price] $60 +
[Calculated Sales Tax] $5.25
TOTAL = $65.25

To simplify the calculation, you can also use TaxHero’s FREE Sales Tax Calculator.

Sales Tax on Discounted Clothing, Donations, and Returns

The application of sales tax on clothing can become more complex if it involves discounted apparel or garments purchased for donations, including returned items.

For both buyers and retailers, knowing how to apply the correct rates is crucial to prevent excess payments and inaccurate tax reports.

Here’s a simple scenario to guide you.

Let’s say you are purchasing a taxable clothing item in New York. The clothing qualifies as a necessary good that is generally exempt from sales tax in New York as long as the price is under $110.

The items you bought are worth $200, and you have a $50 coupon. The calculation goes like this:

$200 minus $50 is $150. This is your discounted purchase price.
New York’s sales tax exemption on clothing is capped at apparel worth $110.
Therefore, the entire transaction is still taxable as it exceeded the threshold.
For that, take the state’s sales tax rate plus any applicable local charges to get the right tax rate.

Example breakdown (without any added local taxes):

150 (sales price with discount coupon) x
0.08875 (New York’s state sales tax rate in decimal format)
= $13.31 (rounded off sales tax)
Now, take the calculated sales tax and add it to the price of the discounted apparel.
$13.31 sales tax + $150 apparel
TOTAL PURCHASE PRICE: $163.31

Need help with calculations? Get in touch with TaxHero for assistance and never worry about these numbers again!

When to Collect Sales Tax on Clothing?

Knowing what clothing sales tax is and how it works is one thing, but knowing when to start collecting is another concern most new businesses tend to ask.

The short answer: You must start collecting whenever you sell taxable clothing once your business is registered in a state and it has established a sales tax nexus.

What is Sales Tax Nexus?

A sales tax nexus is a rule created to define your business presence in a state. You may view it as a bridge that connects your business to a state’s economic system. Once you fully cross that bridge, you formally establish a sales tax nexus with that state.

When a sales tax nexus is created, your business is generally required to register in the state and begin collecting and remitting sales tax.

But how can you identify once a sales tax nexus exists for your business? Two types of sales tax nexus determine your business’s presence in a state: physical nexus and economic nexus.

Physical Nexus

A business establishes a physical nexus by having a substantial physical presence or engaging in enough taxable sales activities within a state. Here are the common factors that create a physical nexus in most states.

Physical Location: Having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
Inventory in the State: Storing products within the state, whether it’s done via a third-party fulfillment center or 3PL (such as Amazon FBA) or an online marketplace.
Business Representatives: Having employees, independent contractors, agents, or other representatives operating within the state on your behalf.

Keep in mind that these are only 3 common factors for a physical nexus. Some states may have other conditions for establishing a physical nexus, such as an affiliate nexus or click-through nexus, as well as being present in trade shows, and more.

Economic Nexus

Economic nexus is established based on two common factors.

Total sales revenue and/or
The number of transactions you’ve had within the state.

Each state has different thresholds, and these thresholds are also subject to change.

For example, in Alabama, the economic nexus threshold is only $250,000 in gross revenue in the previous calendar year’s sales. Once you meet that amount when making taxable sales of apparel in Alabama, you now have an economic nexus in the state.

Note that Alabama has already eliminated its 200-transaction threshold, and other states may also do the same.

To check each state’s economic nexus threshold, read: Ultimate Guide to Understanding Economic Nexus

Who Needs to Collect Sales Tax on Clothing?

As explained above, you should start collecting once you create a sales tax nexus. Now that you know the two types of nexus, which one can your business trigger?

State-based Businesses: Generally, in-state businesses can quickly establish a physical nexus in the state due to having physical presence, such as having physical stores or warehouses. This often leads local businesses to register almost immediately, unlike remote sellers selling in another state.
Out-of-state Businesses (Online Sellers): Remotely selling taxable clothes in a state can still make you liable to sales tax obligations once you establish an economic nexus in a state. This means that even if you have no physical presence in the state, businesses must still register for sales tax as long as they create an economic nexus.

Did you know there’s an easy way to keep track of your nexus nationwide? You can try TaxHero’s nexus analysis through our free demo!

How Clothing Retailers Can Stay Sales Tax Compliant

With the complex nature of clothing taxability rules in the U.S., staying compliant feels like a difficult endeavor. To avoid unwanted penalties, here are 5 critical things every clothing retailer should know to stay compliant.

Keep track of your nexus – It’s important to know where you stand in the “invisible bridge” that connects your business to a state’s economic system. Once you cross that bridge and establish a nexus, you’ll have to register and comply with tax regulations. Failure to comply results in penalties that can harm your business.
Check every state’s specific rules – Never assume that one state’s sales tax rule is the same as another’s. Even if some rules seem common among many states, it’s still best to navigate safely by verifying every individual state’s specific rules.
Always keep records – Your transactions are proof of your business activities. Once your business creates a nexus, a good practice to stay compliant is to maintain records. These records will help your business stay clear during audits and prevent penalties.
Identify your product’s taxability – The taxability of clothing varies depending on the state’s specific rules and guidelines. You must know where your product is subject to taxation and where it is exempt, whether partial exemption or not.
Calculate carefully – Clothing sales tax can be complicated, as each line has to be processed, especially when considering additional discounts and other factors that can alter the default rates. Even a small difference in the report can cost you an audit. When calculating apparel taxes, always be mindful of local surcharges, district taxes, and local option taxes that may apply to your transactions.

NOTE: You can also consider outsourcing sales tax compliance by choosing the most suitable tax software for your needs. With TaxHero, we handle all your compliance requirements so you don’t have to.

Let TaxHero Help Manage Your Clothing Sales Tax

Running an apparel store shouldn’t be too complicated. Let expert accountants at TaxHero handle your compliance concerns. From identifying your taxabilities and filing your sales tax reports on time, we take everything off your hands so you can focus on growing your business.

Schedule a call with our CEO and get a FREE DEMO of our software today!

Frequently Asked Questions

1. Do online sellers need to collect clothing tax?+

Yes, online sellers must collect and remit sales tax on clothing if they have met nexus in the state.

2. I sell fashion and I need help!+

There is always room for learning when it comes to sales tax. As an online seller, keeping a record of everything by yourself can be challenging, so you should consider outsourcing.

3. How much is tax in the US on clothes?+

The tax on clothes in the US varies by state. In some states, clothes are not subject to taxation at all. To determine the tax rate on clothes in the US, you must identify the state’s total combined rates and see whether it taxes apparel or not

4. What is the sales tax on clothing in NYC?+

The sales tax on clothing in NYC is 8.875%. This rate only applies to the price of taxable clothing and footwear that exceeds the $110 clothing tax exemption threshold. This means if you purchased apparel worth $110.01, the entire transaction becomes taxable.

NOTE: The exemption applies to each item. For example, if you buy 2 shirts costing $100 each, bringing the total to $200, the entire $200-transaction is still non-taxable.

5. What is the sales tax on clothes in Florida?+

The sales tax on clothes in Florida is 6% plus any applicable local surcharges. Generally, most apparel is taxable in Florida. However, an exemption applies to children’s clothing.

Sales tax on services by state: A complete guide | TaxHero

Navigating the complex and ever-changing sales tax on services can be challenging for businesses and is usually more complicated than understanding sales tax on goods.

The common misunderstanding is that only physical goods are subject to sales tax, and services are somehow exempt. However, clarifying this misconception is essential because many businesses are unaware of the changing rules and regulations when collecting sales tax on services. In recent years, an increasing number of states have started requiring sales tax on services and are continuously updating their guidelines on what is taxable and what is exempt.

This guide clarifies sales tax on services across states and serves as a valuable resource to streamline sales tax compliance for businesses and tax professionals.

Key Takeaways

Each state has different rules regarding the taxability of services. Some states may exempt a specific service, while others may not
Charging sales tax on services is not required unless your business has a sales tax nexus in a state and you are selling a taxable service in that state.
What’s exempt at a state-level can still be subject to local sales tax. It’s important to check local or home rules, especially for sales tax on services.
The taxability of bundled transactions where both goods and services are sold together can be determined through a “true object test.”
Rules can change anytime. An exempt service today can be taxable tomorrow. Staying updated with the latest news is important.

Goods vs. Services: What’s the difference?

To better understand how sales tax guidelines distinguish between “goods” and “services,” let’s define these terms and highlight their fundamental differences.

Goods – Defined as TPP or “Tangible Personal Property” items, such as furniture, automobiles, jewelry, beauty products, clothing, appliances, electronics, food items, and more.
Services – Refers to intangible activities that may or may not produce a tangible good. Services include legal, consulting, advertising, personal grooming, repairs and maintenance, and more.

What are the different types of “Services”?

Services cover many activities, but we can make things easier to understand by grouping them into a few broad categories.

Business Services – includes consulting, advertising, computer services, lobby, and human resource services.
Personal Services – includes various self-improvement and personal grooming services, such as dry cleaning, salons, and spas. Animal grooming is also included in personal services and is taxable in some states.
Professional Services – services provided by licensed and certified professionals such as accountants, lawyers, physicians, attorneys, doctors, and architects. These services are taxable only in some states due to powerful lobbying.
Services to TPP – refer to services directly related to the sale of tangible personal property (i.e., products). These services include repairs and maintenance, shipping or delivery, warehousing, engineering, installation, and rental services.
Amusement and Recreation Services – services that provide entertainment, fun, and enjoyment to individuals. They include amusement parks, sports events, concerts, and sightseeing tours.
Service to Real Property – services directly related to immovable property (i.e., buildings) and real estate. They include building improvement, construction, architectural, property management, property maintenance (i.e., lawn service, cleaning/janitorial services), and broker services.

Some other services are educational, healthcare, and nonprofit organization services. Typically, these services are exempt from sales tax in some but not all states.

Additionally, it’s important to note that being a nonprofit organization does not always grant sales tax exemptions. Individually checking each state’s rules on nonprofit organization services is crucial to ensure you apply the proper taxabilities and exemptions.

When to Charge Sales Tax on Services?

Each state has its own rules and regulations regarding which types of services are subject to sales tax. Just like products, not all services are subject to sales tax. New sales tax regulations are being implemented frequently on services as service-based businesses grow in the United States.

As a business, you must determine whether you need to charge sales tax on services before running a service-based business.

To determine if your business is eligible to collect sales tax on the services you provide, there are a few crucial factors to consider:

Taxability of Services: Understanding the taxability rules for services in each state where you conduct business is vital. Each state has different guidelines regarding which services are subject to sales tax.
Nexus Requirements: You only need to focus on the states where your business has established a physical and economic nexus. Nexus refers to having a significant presence or connection in a state that triggers tax obligations.

You should register for a sales tax permit in states where your business meets these criteria. This registration ensures compliance with sales tax regulations specific to your services.

How to Determine Service Taxability Using the True Object Test

Identifying the taxability of services can stir confusion at times when it involves the sale of tangible personal property or equipment. This commonly occurs in bundled sales where both goods and services are sold together. In that case, how can you identify when to charge sales tax on services when the service may not be recognized as a service?

The states have come up with a solution to this dilemma, which is the “true object test.”

This test focuses on defining the main purpose of the transaction. Basically, you must ask yourself, is the main purpose of the transaction to receive a service or to obtain the goods involved?

Here’s an example of a true object test:

An accountant charges you for their financial reporting service. The report is a physical documentation that makes it a tangible personal property being sold along with the service.
Your main purpose is to obtain that report to use for your business’s financial planning.
However, there won’t be a report at all without the accountant’s services in the first place. In other words, the transaction can’t be accomplished without the accounting services involved.
Therefore, the “true object” here is the service provided, not just obtaining the report. Thus, the transaction is defined solely as a “service” and not the sale of tangible personal property or equipment. With this, the confusion of a service’s taxability can be easily cleared.

Sales Tax on Services by States

The following table summarizes each state’s general services category subject to sales tax.

Note: Within each category of services, each state can have different regulations for sales tax and what is taxable within that category. Please refer to the State’s Department of Revenue website for guidelines on whether a specific service is taxable.

STATE	ARE SERVICES TAXABLE?	SALES TAX RATE	EXEMPTIONS
Alabama	No	n/a	There is no statewide sales tax in Alaska. However, cities and boroughs may impose a local sales tax on services. At the local level, services are generally not taxable. However, a few services are subject to sales tax, such as: Linen or garment rentals Amusement or Entertainment Services Renting/leasing of tangible personal property Labor charges for making, producing, or fabricating new tangible personal property
Alaska	not applicable	0%	There is no statewide sales tax in Alaska. However, cities and boroughs may impose a local sales tax on services.
Arizona	No	n/a	The majority of all service-based transactions, such as professional services, advertising, and cleaning services, are generally not subject to sales tax. However, there are specific situations where certain services are taxable, like: Utilities Pipeline Contracting Job printing Transporting Private car lines Transient lodging Telecommunications Amusement or entertainment services
Arkansas	Yes	6.50%	Personal and business services, services to TPP, amusement, and services to real property are generally taxable.
California	No	n/a	Most services are not subject to sales tax in California. However, services that are inseparable from the sale of TPP may be subject to sales tax, such as fabrication labor.
Colorado	No	n/a	Sales of services are generally not taxable at the state level in Colorado. Local government can apply a home rule where a local sales tax is applied to certain services. At the state level, only a few specified services are taxable in Colorado. Those taxable services are: Telephone and telegraph services Gas and electric services for commercial use
Connecticut	Yes	6.35%	The majority of service-based transactions are generally taxable in Connecticut, such as: Management Dry cleaning services Exterminating services Computer and data processing Credit information and reporting Advertising or public relations services
Delaware	not applicable	0%	There is no sales tax in Delaware.
Florida	Yes	6%	Certain services are taxable in Florida, such as: Detective and other protection services Non-residential cleaning and non-residential pest control services Charges for admission to any place of amusement, sport, or recreation
Georgia	No	n/a	Most services are generally exempt from sales tax in Georgia. However, certain services are subject to sales tax, such as: In-state transportation of individuals through taxis or limousines Admission charges to any place of amusement, sport, or recreation Charges required to complete the sale of a TPP (e.g., $20 sale price of a shirt plus $5 for delivery, sales tax is imposed on $25)
Hawaii	Yes	4%	All services are generally subject to GET (General Excise Tax) in Hawaii. Exceptions only apply when specifically stated by Hawaii authorities.
Idaho	Yes	6%	A variety of services are taxable in Idaho, such as: Renting or leasing Accommodation services Printing and imprinting services Fitness or health club memberships Manufacturing or production services Admission charges to any place of amusement, sport, or recreation
Illinois	No	n/a	Services are generally not subject to sales tax in Illinois.
Indiana	No	n/a	Services are generally not taxable in Indiana. However, a few exceptions apply to services such as: Intrastate telecommunication services Photography and video services (when sold as a service package with added labor charges) Contractor services involving preparation, fabrication, alteration, modification, finishing, completion, and delivery of construction materials
Iowa	No	n/a	A wide range of specified services is subject to sales tax in Iowa. Anything that is not listed on the list of taxable services is most likely exempt from sales tax. The following are a few examples of tax-exempt services in Iowa: Services for resale Employee services Construction services Repair and restoration of TPP
Kansas	Yes	6.50%	Most services are generally subject to sales tax in Kansas. However, a few specific services are exempt from sales tax, such as: Janitorial services Demolition services performed in connection with the “original construction” of a building (residential or commercial) or facility on the same site Professional services such as medical services, engineering, consulting, accounting, and bookkeeping services
Kentucky	Yes	6%	The majority of service-based transactions are generally subject to sales tax in Kentucky.
Louisiana	No	n/a	Services are generally not subject to sales tax at the state level in Louisiana. However, a few specific services are taxable, such as: Parking Admissions Information services Furnishing of sleeping rooms Printing and copying services Furnishing of cold storage space Prewritten computer software access services Cable, satellite, and digital audio radio services Repairs and maintenance of TPP and digital products Telecommunications services in accordance with R.S. 47: 301.1 Laundry, cleaning, pressing, alteration, repair, and dyeing services
Maine	Yes	5.50%	Services are generally exempt from sales tax in Maine. However, certain services may be subject to the state’s service provider tax instead. Those services are: Rental services Ancillary services Fabrication services Telecommunications services Cable and satellite television or radio services Installation, maintenance, or repair of telecommunications equipment
Maryland	No	n/a	The majority of service-based transactions, such as professional services and advertising, are not subject to sales tax. However, there are specific situations where certain services are taxable, like: Manufacturing or producing personal property Transportation of electricity or natural gas Certain telecommunications services Credit reporting services Security services Commercial cleaning and janitorial services
Massachusetts	No	n/a	Services are generally not subject to sales tax in Massachusetts.
Michigan	No	n/a	Services are generally not subject to sales tax in Michigan.
Minnesota	Yes	6.875%	Most services are generally not taxable in Minnesota. However, some services are subject to sales tax, such as: Parking Lodging Massages Admissions Delivery charges Telecommunication Detective and security Cleaning and maintenance Lawn, tree, bush, and gardening Pet grooming, boarding, and care Laundry, dry cleaning, and alteration Motor vehicle towing, washing, waxing, rustproofing, and cleaning services
Mississippi	Yes	7%	Business services, services to TPP, amusement, and services to real property
Missouri	No	n/a	Most services are exempt from sales tax in Missouri. However, there are a few exceptions. The following services are subject to sales tax in Missouri: Phone, mobile, and telegraph services Transportation services like taxis, rideshares, buses, etc. Hotel stays, restaurant meals, and drinks from places like hotels, diners, and bars Utilities like electricity, water, or gas to domestic, commercial, or industrial users Admissions to places of amusement, entertainment, and recreation, games, and athletic events
Montana	not applicable	0%	There is no sales tax in Montana.
Nebraska	Yes	5.50%	A variety of services are subject to sales tax in Nebraska. However, a few services are exempt, such as: Laundry and dry cleaning Installations of agricultural chemicals Medical services for livestock animals Repair and maintenance services for tires
Nevada	No	n/a	Most services are not taxable in Nevada. However, services to TPP are taxable, such as: Food or beverage preparation services Production, fabrication, processing, printing, and imprinting services Installation and repair services are taxable if not listed separately on the invoice
New Hampshire	not applicable	0%	There is no sales tax in New Hampshire.
New Jersey	No	n/a	Most services are taxable in New Jersey. However, exceptions apply to the following services: Typing Credit repair Bookkeeping Daycare centers Advertising services Architectural services Data processing services Laundry and dry cleaning Contractual garbage removal Sports event admission charges Professional accounting services Cable or satellite TV subscription Jewelry and real estate appraisals Beauty parlor and barber shop services
New Mexico	Yes	4.875%	Personal, professional, and business services, services to TPP, amusement, and services to real property are generally subject to gross receipts tax in New Mexico. Currently, only a few services are exempt, such as: Handling, feeding, pasturing, and training livestock Insurance company receipts or agent receipts for property bondsmen from bail bond securities
New York	No	n/a	The majority of service-based transactions, such as professional services, advertising, and laundry and dry cleaning services, are not subject to sales tax at the state level in New York. However, there are specific situations where certain services are taxable, like: Utility services Hotel occupancy Information services Certain cabaret services Social and athletic club dues Protective and detective services Admission to places of amusement Interior decorating and design services Cleaning, maintenance, and repair services Telecommunication (phone and mobile) services NOTE: Some services are only taxed locally in some cities but not taxed at the state level.
North Carolina	No	n/a	Most services are not subject to sales tax in North Carolina. However, there are specific situations where certain services are taxable, like: Service contracts Video programming services Dry cleaning and laundry services Prepaid telephone calling services Satellite digital audio radio services Repair, maintenance, and installation Telecommunications and ancillary services Admission charges to an entertainment activity
North Dakota	No	n/a	Most services are generally not taxable in North Dakota. However, a few services are subject to sales tax, such as: Renting or leasing of TPP Photo developing or printing Amusement or recreation services Tire repair and restoration services
Ohio	Yes	5.75%	Most services are subject to sales tax in Ohio. However, a few services are exempt, such as: Insurance transactions Professional and personal services
Oklahoma	No	n/a	The majority of service-based transactions, such as professional services and cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable, like: Tanning salons Florist services Catering services Advertising services Fabrication services Hotel accommodation Computer services involving prewritten programs Telecommunications services sourced to Oklahoma Admissions, dues, or fees to clubs, amusement venues, sports events, or for using facilities related to entertainment, recreation, or athletics.
Oregon	not applicable	0%	There is no sales tax in Oregon.
Pennsylvania	No	n/a	The majority of service-based transactions, such as professional services, advertising, and laundry and dry cleaning services, are not subject to sales tax. However, there are specific situations where certain services are taxable, like: Catering services Lobbying services Lawn care services Help supply services Self-storage services Premium cable services Credit reporting services Adjustment and collection services Disinfecting or pest control service
Rhode Island	Yes	7%	A variety of services are taxable in Rhode Island. Taxable services in Rhode Island include, but aren’t limited to: Renting or leasing TPP Pet care and grooming services Transportation of individuals through taxis or limousines
South Carolina	Yes	6%	Certain services are taxable in South Carolina, including but not limited to: Electricity Hotel accommodation Communication services Renting or leasing of TPP Dry cleaning and laundry services Admission to places of amusement
South Dakota	Yes	4.20%	Most services are taxable in South Dakota. However, certain services are exempt from sales tax, such as: Social services Health services Advertising services Agricultural services Educational services Construction services Veterinary and animal specialty Local and suburban passenger transportation (not including limousine, school buses, trucking, and courier services) Credit counseling services provided by individual or family social services
Tennessee	Yes	7%	Specific services are taxable in Tennessee. Those services are: Lodging services Short-term space rentals Telecommunication services and ancillary Cleaning of TPP, including animal bathing Repair and installation of TPP or computer software
Texas	Yes	6.25%	Most services are taxable in Texas. Taxable services include, but are not limited to: Amusement Services to TPP Business services Services to real property
Utah	No	n/a	The majority of service-based transactions, such as professional services, advertising, and beauty services, are not subject to sales tax. However, there are specific situations where certain services are taxable, like: Dry cleaning and laundry services In-state telecommunication services Use of assisted amusement devices Assisted cleaning or washing of tangible personal property
Vermont	Yes	6%	Most services are generally exempt from sales tax in Vermont. However, certain services are taxable, such as: Taxidermy Dog grooming Aircraft rentals Streaming services Public utility services Telecommunications service Admission to places of amusement Photo copying and printing services Cable and direct satellite TV services Producing, fabricating, printing, or imprinting of tangible personal property
Virginia	No	n/a	The majority of service-based transactions, such as professional services, clothing alterations, and repair services, are not subject to sales tax. However, if a business offers services that include creating or manufacturing a tangible personal product, it is seen as a retail sale and, therefore, is subject to sales tax.
Washington	Yes	6.50%	Most services are taxable in Washington. As of October 1, 2025, more services have also become taxable in Washington. Those services are: Web developing Temporary staffing Advertising services Custom software and customization Information Technology (IT) services Live presentations (webinars or courses) Investigation, security, and armored car services
West Virginia	Yes	6%	Most services are taxable in West Virginia. However, a few exceptions apply. The following services are exempt from West Virginia sales tax: Advertising Contracting Public services Day care services Employee services Educational summer camps Interstate transportation services
Wisconsin	Yes	5%	Most services are taxable in Wisconsin, including but not limited to: Photographic services Telecommunications services Laundry and dry cleaning services Admission to places of amusement Fabricating, processing, and printing Rooms or lodging for less than one month Contracts for future performance of services Parking services for motor vehicles and aircraft Landscaping and lawn maintenance services Towing and hauling of motor vehicles by a tow truck Repair and service of tangible personal property, items, property, or goods
Wyoming	No	n/a	Most services are generally exempt from sales tax in Wyoming. However, certain services are taxable, such as: Repair and alterations of TPP Intrastate transportation services Admission to places of amusement Rental or leasing of TPP or ancillary services

Which state taxes the most services?

Even with the table provided above, it can be difficult to tell which state taxes the most services at a glance. In summary, there are 4 states that tax services automatically, unless specific exemptions are stated. Those states are Hawaii, New Mexico, South Dakota, and West Virginia.

Aside from the aforementioned states, Washington and Minnesota are 2 states with a very broad taxability base for sales tax on services.

Which state taxes the fewest services?

Five states do not impose any sales tax at all. Those states are New Hampshire, Oregon, Montana, Alaska, and Delaware, also known as the “NOMAD” states. However, for clarification, Alaska does have a local sales tax.

But apart from the NOMAD states, there are plenty of sales tax-friendly states when it comes to the taxability of many services. Here are some of those states:

DISCLAIMER: Most services in the states listed above may not be taxable at the state level. However, services can still be taxable at a local level due to applicable home rules in states like Colorado, Alabama, and Louisiana.

How to Stay Compliant with Varying Rules for Sales Tax on Services

The taxability of services varies state-by-state. With this level of complexity, it’s easy to feel lost when it comes to navigating the ever-changing sales tax rules. To help you stay compliant when managing sales tax on services, here are 5 essential tips to keep in mind.

Check the state’s tax rules thoroughly – Whether you are selling from North to South, it’s important to know the specific rules of every state you are dealing with. One state may tax certain services, while another may not.
Additionally, local taxability also matters. Sometimes, what’s tax-exempt at a state level may still be subject to local sales tax. To keep everything covered, you should also check the city or county’s rules when it comes to the service’s taxability.
Consider your nexus – Before you worry about charging sales tax on your services, first, you need to ask, should you collect sales tax at all? If you have no sales tax nexus in a state, you are generally not required to register and have no obligation to collect sales tax from your services.
This means even if your services are subject to sales tax, charging sales tax is not mandated until you establish an economic nexus in the state you are selling to.
Keep in mind that rules change over time – What’s exempt today may become taxable tomorrow. Never let your guard down when it comes to taxabilities of your products and services. To ensure you stay updated, you can consider doing the following:
– Visit state websites directly for more official and verified news.
– Subscribe to sales tax channels that provide nationwide updates.
– Follow accounts or pages that announce relevant sales tax news.
Do a true object test when necessary – As explained earlier, a true object test is done by certain states to accurately determine a service’s taxability. If a transaction’s main purpose involves the sale of a tax-exempt service, then the transaction should be exempt from sales tax.
However, if a transaction primarily involves the sale of tangible personal property or equipment along with the service, then the transaction may be defined as a retail sale rather than a tax-exempt service.
That means the transaction is determined to be taxable based on the “true object” test.
Use a reliable sales tax software – Consider using a sales tax software that can do everything for you, including alerting you whenever there’s a new rule that may impact your business.
If you need help with sales tax compliance, you can try out TaxHero’s free demo and learn how we fully take sales tax compliance off your hands.

Local Sales Tax on Services

While some states may not have a statewide sales tax on services, some localities, such as counties or cities, may impose a local sales tax on services.

For example, the state of New York does not impose a statewide sales tax on the following services, but a local sales tax in New York City applies:

Electrolysis
Tanning Services
Massage Services
Beautician Services
Credit Rating Services
Manicure and Pedicure
Services provided by weight control and Health Salons, Gyms, Sauna Baths, and other similar facilities

This difference in state and local taxabilities of services further complicates the already complex nature of sales tax.

If you need help with sales tax on services or have any questions, book a call with our CEO at TaxHero.

Common Mistakes When Managing Sales Tax on Services

Another way to ensure you stay compliant is by being conscious of the common mistakes when it comes to dealing with sales tax on services. With that said, avoid these 3 common mistakes businesses make when managing sales tax on services:

Assuming the taxability – This mistake happens anywhere related to sales tax compliance. Assuming a product’s taxability and not verifying with official resources, such as state websites, can cause you unwanted liabilities.
Skipping the true object test – It’s not always easy to determine on the spot whether your service is taxable or not. In some states, like Colorado, you must do a true object test to identify if your service is the “true object” of the transaction.
However, if a tangible personal property or equipment involved with the service is the “true object” of the transaction, then your sale may become subject to sales tax. Whenever you’re in doubt about your service’s taxability, don’t miss out on doing a true object test.
Not checking local taxability – In line with the first mistake, it’s also common to forget that some localities have their own rules. To avoid penalties, always keep in mind that state-level exemptions may not always apply locally.

Why Sales Tax on Services Continues to Expand

As of now, more states still have an average coverage when it comes to the taxability of services. However, as trends change and demands grow, some states may also begin defining the taxability of more services anytime soon.

Just like how laws on digital products and their taxability continue to evolve, sales tax on services may eventually expand to cover a broader base than before. This may be done to fund new government projects and other important plans a state may have.

Due to this, it’s necessary to stay up-to-date with every potential change that may impact your business. Don’t hesitate to bookmark and check this guide regularly, as TaxHero provides you with the newest updates.

sales tax update notification on phone screen

Alternatively, if you prefer getting your occasional sales tax news from other channels, you can also follow TaxHero on Facebook, X (Twitter), or LinkedIn for more US sales tax updates for ecommerce businesses!

Simplify your Sales Tax Compliance with TaxHero

Let experts at TaxHero handle the nitty-gritty of your sales tax compliance, including managing the sales tax obligations applicable to your services. We’ll take care of everything from determining taxability to understanding your nexus requirements.

Book a call today to get your questions answered!

Frequently Asked Questions

1. Does US sales tax apply to services?+

Yes, US sales tax does apply to services in states where the service is specified to be taxable. However, for businesses, this depends on whether they have a sales tax nexus or not. If the service provider does not have a nexus, they don’t need to apply sales tax on their services.

At the same time, some states may specifically apply sales tax on certain services. Meanwhile, other states may not. That’s why the U.S is known for its complex sales tax rules since every state have their own unique laws and regulations.

2. Do I need to charge sales tax for services?+

You only need to charge sales tax for services based on 2 crucial factors:

The service you are selling is taxable in the state where you are selling and
You have a sales tax nexus in the state where you are selling, and your business is already registered

3. Do you charge sales tax on services in New York?+

You must charge sales tax on services in New York if you meet the following conditions:

You are selling a taxable service in New York – Keep in mind that most services in New York are not subject to the state-level sales tax. Therefore, you have to check the service’s taxability first.
You have a sales tax nexus in New York – Once your business meets the state’s economic nexus threshold, you are required to register and begin charging sales tax on taxable sales. This includes your services unless it is specifically stated to be exempt.

For more information, you can read: The Ultimate Business Guide to Sales Tax in New York