General Sales Taxes and Gross Receipts Taxes

State and Local Backgrounders Homepage

Sales taxes are taxes on goods and services levied either as a percentage of the sales price or as a fixed amount per unit sold (for example, per pack of cigarettes or gallon of gasoline). Sales taxes are included in the final purchase price paid by consumers.

State and local governments collect revenue from both general sales taxes, which apply to a broad range of purchases, and from selective sales taxes on specific goods or services. This backgrounder mostly discusses general sales taxes. For more information on selective sales taxes, see our backgrounders on alcohol taxes, cigarette taxes, marijuana taxes, motor fuel taxes, and soda taxes

Census includes revenue from gross receipts taxes in its totals for general sales taxes. These taxes are also described below. 

How much revenue do state and local governments raise from general sales taxes?

State and local governments collected a combined $377 billion in revenue from general sales taxes, or nearly 13 percent of general revenue in 2016. General sales taxes provided less revenue than property taxes and roughly the same amount of revenue as individual income taxes. State and local governments collected an additional $182 billion from selective sales taxes, or 6 percent of general revenue in 2016.

Sources of State and Local General Revenue

States rely on sales tax revenue more than local governments. State governments collected $291 billion (15 percent of state general revenue) from general sales taxes in 2016, while local governments collected $85 billion (5 percent). By comparison, states collected $150 billion in selective sales taxes (8 percent) and local governments collected $32 billion (2 percent).

State and Local Sales Tax Revenue, 2016

 

General sales tax revenue
 ($ billions)

Percentage of general revenue

Selective sales 
tax revenue
 ($ billions)

Percentage of general revenue

States and local government

$377

13%

$182

6%

States

$291

15%

$150

8%

Local governments

$85

5%

$32

2%

 
Washington relied on general sales tax revenue more than any other state in 2016; general sales taxes accounted for 24 percent of the state’s combined state and local general revenues. Hawaii, Nevada, South Dakota, and Tennessee also collected 20 percent or more of combined state and local general revenues from general sales taxes in 2016. Among the states with a statewide general sales tax, Vermont (5 percent) relied least on sales tax revenue in 2016. Eight other states with statewide general sales taxes collected less than 10 percent of state and local general revenue from the tax. 

Data: View and download each state's taxes as a percentage of general revenue

Alaska, Delaware, Montana, New Hampshire, and Oregon do not levy a general state sales tax. However, Alaska allowed local governments to levy their own general sales taxes, and those taxes accounted for 2 percent of its combined state and local general revenue. Delaware levies a gross receipts tax (Census counts its revenue as general sales tax revenue) and it provided 10 percent of its state and local general revenue in 2016. 

What are gross receipts taxes and which states levy them?

Gross receipts taxes are also taxes on sales, but unlike a general sales tax, the tax is levied on the seller rather than the consumer. That is, the business pays a percentage of its total sales (or gross receipts) as tax to the government rather than the consumer paying a percentage of the purchase price during the transaction (and the business remitting it to the government). However, while levied on the business, the cost of the gross receipts tax is still mostly if not entirely passed on to the consumer. Further, and critically, a gross receipts tax typically has few or no exemptions and thus taxes business-to-business purchases. Proponents argue this makes gross receipts taxes a far simpler business tax than state corporate income taxes. But opponents argue taxing business-to-business purchases, at multiple stages of production, can cause "tax pyramiding" which drives up the cost of products for consumers and creates different effective tax rates for different industries. 

There are currently statewide gross receipts taxes in Delaware (gross receipts tax), Nevada (commerce tax), Ohio (commercial activity tax), Texas (franchise tax), and Washington (business and occupation tax). The District of Columbia also levies a gross receipts tax on some industries. Each state (except for Ohio) uses different tax rates for different industries, but nearly all the gross receipts tax rates are well below 1 percent (for example, Ohio's single rate is 0.26 percent). 

 

How much do general sales tax rates differ across states?

State general sales tax rates in 2019 range from 2.9 percent in Colorado to 7.25 percent in California. Among states with a general sales tax, Colorado is the only state with a rate below 4.0 percent; the rate is exactly 4.0 percent in Alabama, Georgia, Hawaii, New York, and Wyoming. Conversely, California is the only state with a rate above 7.0 percent but the general sales tax rate is exactly 7.0 percent in Indiana, Mississippi, Rhode Island, and Tennessee.

Data: View and download each state's general sales tax rate and local general sales tax rates

Thirty-seven states (including Alaska, which has no statewide tax) allow local governments to impose their own general sales taxes in addition to the state general sales tax. The maximum sales tax rates levied by local governments range from 0.5 percent in Hawaii to 8.3 percent in Colorado. Only one locality in Hawaii (Honolulu) taxes general sales while thousands of localities levy the tax with different rates in California, Illinois, Iowa, and Texas. 

What purchases are subject to the general sales tax?

State general sales taxes apply to the purchase of nearly all tangible goods. One notable exception is food purchased for use at home: only 12 states tax such purchases, and six of those states tax such food at a lower rate than their general sales tax rate. The state does not tax food in Georgia, Louisiana, and North Carolina, but local governments can.  Hawaii, Idaho, Kansas, Oklahoma, and South Dakota tax food for use at home but offer income tax credits to low-income residents to help offset the tax. In contrast, some cities, such as San Francisco and the District of Columbia, tax food bought for immediate consumption (such as food bought at a restaurant), often at a higher rate than the general sales tax rate.

Many states also exempt nonprescription drugs, textbooks, or clothing from general sales taxes. And 16 states have sales tax holidays, when specific purchases, such as clothes and school supplies right before the start of a new school year, are sold tax free.

The taxation of services (such as dry cleaning, carpentry, and hairdressing) is more complicated. All states tax some services, but exemptions are common. Very few states tax professional services such as those rendered by doctors and lawyers. Hawaii and New Mexico are exceptions to the rule and tax nearly all services. Delaware and Washington also tax a relatively large number of services.

Do sales taxes apply to online purchases?

The treatment of online and other remote sales (such as catalog sales) is also complex. In 1992 the Supreme Court ruled (Quill Corp. v. North Dakota) that under the commerce clause of the US Constitution, a retailer with no physical presence in the online purchaser’s state of residence (technically called a "nexus” requirement) is not required to collect a state or local sales tax from the consumer.

However, the Supreme Court revisited this issue in 2018 in South Dakota v. Wayfair, Inc., overturned Quill, and gave states broad authority to collect the tax. The Supreme Court upheld a South Dakota law requiring any entity with sales of $100,000 or more or with over 200 transactions in South Dakota to collect and remit the state’s sales tax. Other states quickly began enacting similar laws. For more on the history of online sales taxes and the Supreme Court decision, see our brief, The Evolution of Online Sales Taxes and What's Next For States.

Many large retailers voluntarily collected the tax on their sales before the recent Supreme Court decision. Most notably, Amazon has collected state general sales taxes on their sales in every state with a general sales tax since April 2017. However, even after the Wayfair decision, many states are still working on legislation that would require “marketplace facilitators,” organizations such as Amazon that allow third-party retailers to also sell items on their platform, to collect state sales taxes on those third-party sales as well.

Even if a business does not collect sales tax on an online transaction, the consumer is still required to pay the tax because states levy use taxes in addition to sales taxes. That is, consumers are subject to use taxes in their home state on all goods purchased outside their state of residence for consumption in their home state. The use tax rate is the same as the sales tax rate, but few consumers are aware of the tax and actually pay it. Most states with both a sales tax and an individual income tax (including California, Kentucky, Virginia, and Utah) give taxpayers a chance to pay use taxes on their income tax returns.

Interactive data tools

State and Local Finance Initiative Data Query System

Further reading

State Tax and Economic Review
Lucy Dadayan (updated quarterly)

The Evolution of Online Sales Taxes and What's Next For States
Richard Auxier and Kim Rueben (2018)

Congress Has Had 26 Years to Address Online Sales Taxes. It Is About To Fail One More Time
Howard Gleckman (2018)

Do you pay sales tax on your online holiday shopping?
Richard C. Auxier (2016)

Do Sales Tax Holidays Ever Make Sense?
Richard C. Auxier (2014)

Missouri voters were sold a bill of (taxable) goods
Richard C. Auxier (2016)

Note

All revenue data are from the US Census Bureau’s Annual Survey of State Government Tax Collections. All dates in sections about revenue reference the fiscal year unless stated otherwise.