Sales Tax by State: Complete Guide for US and Canadian Businesses

Sales tax is one of the most frequently misunderstood areas of US and Canadian business compliance. Whether you are a freelancer, e-commerce seller, or small business owner, understanding how sales tax works in your jurisdiction can save you from costly mistakes.

Use the Sales Tax Calculator to add or remove sales tax for any US state or Canadian province instantly.

What Is Sales Tax?

Sales tax is a consumption tax levied by US states and Canadian provinces on the sale of goods and services. Unlike the UK's VAT - which is collected at each stage of the supply chain - sales tax is typically collected only at the point of final sale to the end consumer.

In the US, there is no federal sales tax. Each state sets its own rate, and many cities and counties layer additional local taxes on top.

In Canada, the federal government charges GST (Goods and Services Tax). Provinces either combine their provincial tax into HST, charge PST separately, or collect only GST.

US State Sales Tax Rates at a Glance

The five states with no state sales tax are:

Alaska (though local taxes may apply)
Delaware
Montana
New Hampshire
Oregon

The highest state-only rates belong to California (7.25%), Indiana and Mississippi (7%), and Tennessee (7%). Most states fall in the 4–6.5% range.

Note: These are state-level base rates. When you add city and county taxes, the combined rate can be significantly higher. For example, the combined rate in Chicago, Illinois can exceed 10%.

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How to Calculate Sales Tax

The formula is straightforward:

Adding tax: Tax = Pre-tax amount × (Rate ÷ 100)

Total with tax: Total = Pre-tax amount + Tax

Example: A $150 purchase in Texas (6.25% state rate):

Tax = $150 × 0.0625 = $9.38
Total = $150 + $9.38 = $159.38

How to Do a Reverse Sales Tax Calculation

Sometimes you know the tax-inclusive price and need to extract the pre-tax amount. This is called a reverse sales tax calculation.

Formula: Pre-tax amount = Total ÷ (1 + Rate ÷ 100)

Example: You paid $159.38 total in Texas. What was the pre-tax price?

Pre-tax = $159.38 ÷ 1.0625 = $150.00

The Sales Tax Calculator handles this automatically in "Remove Tax" mode.

Do Online Sellers Need to Collect Sales Tax?

Following the US Supreme Court ruling in South Dakota v. Wayfair (2018), states can require out-of-state sellers to collect and remit sales tax even without a physical presence. Most states now have economic nexus thresholds - commonly $100,000 in sales or 200 transactions per year.

If you sell online across multiple US states, you may have nexus obligations in several states simultaneously. Consider using tax compliance software like TaxJar or Avalara for multi-state selling.

Canadian Sales Tax: GST, HST, and PST Explained

Canada's system is more complex than it appears:

Tax	Rate	Who charges it
GST	5%	Federal government - all provinces
HST	13–15%	Combines GST + provincial tax in ON, NB, NS, NL, PEI
PST	6–9.975%	Charged separately in BC, SK, MB, QC (QST)

Provinces where you collect only GST (5%)

Alberta, Northwest Territories, Nunavut, Yukon

Provinces where you collect HST

Ontario (13%), New Brunswick (15%), Nova Scotia (15%), Newfoundland & Labrador (15%), Prince Edward Island (15%)

Provinces where you collect GST + separate PST

British Columbia (12% combined), Manitoba (12%), Saskatchewan (11%), Quebec (14.975% - GST + QST)

When Do Canadian Businesses Need to Register for GST/HST?

You must register for GST/HST if your taxable sales exceed $30,000 CAD in four consecutive calendar quarters. Below this threshold, registration is voluntary. Registering voluntarily can be beneficial if you have significant input tax credits (GST you paid on business expenses) to reclaim.

Taxable vs Exempt Goods and Services

Not all sales are taxable. Common exemptions include:

US common exemptions: groceries (most states), prescription medicines, some clothing (New York, Pennsylvania), and services (many states exempt services from sales tax).

Canadian GST/HST exemptions: basic groceries, prescription drugs, medical devices, most healthcare services, child care, and educational services. Some are zero-rated (taxable at 0%) rather than exempt, which preserves the right to claim input tax credits.

Practical Tips for Small Businesses

Know your nexus. US sellers must determine which states require registration before selling there. Each state has different thresholds.
Keep records. Maintain records of all taxable and exempt sales in case of audit.
File on time. Most jurisdictions require monthly, quarterly, or annual returns depending on sales volume. Late filing typically incurs penalties and interest.
Consider automation. For US multi-state selling, manual calculation is error-prone. Tax automation tools integrate with most e-commerce platforms.
Separate your tax funds. Treat collected sales tax as someone else's money - don't use it for operating expenses. Put it in a dedicated account.

Use our Sales Tax Calculator to quickly add or remove sales tax for any US state or Canadian province. For invoicing, try the Invoice Generator.