Contents: 

1. Understanding the "sales tax" on merchandise and food in the U.S.

2. Special taxes on services used by tourists (hotel and car rental taxes)

3. Import duties on certain items brought into the U.S.

4. Income and employment taxes

1. Understanding the "sales tax" on merchandise and food in the U.S.

One aspect of visiting the United States that often confuses anybody from anywhere else in the world, is the sales tax. In Europe, a Value-Added Tax (VAT) is included in the price of everything sold. Whether you are shopping in a supermarket, eating in a restaurant, or buying a ticket for a movie, this VAT is included in the posted price. Surprise!  In the United States, it is different in most cases!

In the U.S., if there is a "sales tax" on purchased items, it is not marked as such on the label or menu. The tax normally will be  added to the price at the cash register or added on the bill. Alcohol, medicines, jewelery, cigarettes, restaurant meals, clothing, electronics, services, and many  other things except gasoline can have a tax tacked on to it at the end.

For example a bottle of wine will retail for $50. The local tax on alcohol is 20%. 20% of $50 is $10. This means that $10 will be added to the price of the bottle of wine, $50, to cover the tax and the total sum that must be paid is actually $60. Note: There may also be a special state, county, and/or city/town tax that applies only to sales of beer, wine, and other forms of alcohol. This tax will be in addition to any sales tax and will normally appear as a separate line on the bill. There is also a federal tax on alcohol which is included in the price of the beer, wine, or other form of alcohol and is not listed on the bill.

In most states not everything purchased has a sales tax applied. Where food is concerned it largely depends on labor involved: supermarkets generally do not put a sales tax on comestibles because culturally it is seen as cruel to tax basic necessities, especially for the poor (most Americans buy basic staples like eggs, milk, canned goods, etc. and eat them at home.) Restaurants charge a sales tax because it involves somebody else making dinner for you; some areas tax restaurant food at an even higher rate by applying a special restaurant tax.

Sales taxes are applied to items purchased and not to separately-listed charges for labor or services. For example, a repair bill might list the price of parts used, with a sales tax applied to their purchase, but if the cost of the installation labor used is listed separately, the sales tax is not applied to that portion of the bill. No sales tax is imposed on any gratuity or "tip" that you may choose to add to your bill, because it is considered a payment for labor or services.

Sales taxes will not be added to many services used by tourists if no items are actually sold. For example, no sales tax is applied to the price of an admission ticket, coach tour, or a haircut because no tangible merchandise is transferred to the buyer beyond incidental items such as a booklet. For the same reason, no sales taxes are applied to a hotel room rate. However, many places have substantial special taxes that apply to car rentals, and hotel room rates (see below), and some places are starting to impose separate taxes on services.

Sales taxes are imposed on merchandise that you take with you from the shop. Unlike VAT schemes, there is no "export" price or system for a refund of the tax if you take the merchandise with you outside of the U.S. However, sales taxes will not be imposed on merchandise that you have shipped back to your home in another country, or in some cases, back to your home or hotel in another U.S. state. For major purchases, it is wise to compare the cost of goods taken with you (including the sales tax), to the cost of shipping back to your home (without the sales tax but with the shipping cost and any customs duty that might be charged by your own country upon import).

Sales taxes are imposed by individual U.S. states, not by the federal government. Local governments (cities, towns, and counties) in the U.S. may impose additional sales taxes, often 1-2%. For that reason, the same merchandise may have a different tax and thus different total cost in one city over another.As some cities and towns are in different counties it is also possible that the local tax rate may differ in different parts of the same city or town. In some places, the combined state and local sales taxes can be as high as 8-10% of the items price. If you are planning to make large purchases while in the U.S., you may want to do your shopping in a place with a lower sales tax rate. If you are in a big city, you may be able to get a lower sales tax rate simply by going to a shopping center in a nearby suburban town that has a lower local sales tax.

Sales tax rates for each state are listed below. These rates do not include local taxes imposed by many cities, town, and counties.

Here are the tax rates for 2012 (from taxadmin.org):

          - - - - - - - - - - - Sate sales tax rates (year 2012) - - - - - - - - - - -

State

Tax Rate Food Prescription Drugs Non-prescription
Drugs

ALABAMA

4

 

*

 

ALASKA

none

 

 

 

ARIZONA

6.6

*

*

 

ARKANSAS

6

1.5% (4)

*

 

CALIFORNIA (3)

7.25

*

*

 

COLORADO

2.9

*

*

 

CONNECTICUT

6.35

*

*

 

DELAWARE

none

 

 

 

FLORIDA

6

*

*

*

GEORGIA

4

* (4)

*

 

HAWAII

4

 

*

 

IDAHO

6

 

*

 

ILLINOIS

6.25

1%

1%

1%

INDIANA

7

*

*

 

IOWA

6

*

*

 

KANSAS

6.3

 

*

 

KENTUCKY

6

*

*

 

LOUISIANA

4

* (4)

*

 

MAINE

5

*

*

 

MARYLAND

6

*

*

*

MASSACHUSETTS

6.25

*

*

 

MICHIGAN

6

*

*

 

MINNESOTA

6.875

*

*

*

MISSISSIPPI

7

 

*

 

MISSOURI

4.225

 1.225%

*

 

MONTANA

none

 

*

 

NEBRASKA

5.5

*

*

 

NEVADA

6.85

*

*

 

NEW HAMPSHIRE

none

 

 

 

NEW JERSEY

7

*

*

*

NEW MEXICO

5.125

*

*

 

NEW YORK

4

*

*

*

NORTH CAROLINA

4.75

* (4)

*

 

NORTH DAKOTA

5

*

*

 

OHIO

5.5

*

*

 

OKLAHOMA

4.5

 

*

 

OREGON

none

 

 

 

PENNSYLVANIA

6

*

*

*

RHODE ISLAND

7

*

*

 

SOUTH CAROLINA

6

*

*

 

SOUTH DAKOTA

4

 

*

 

TENNESSEE

7

5.5% 

*

 

TEXAS

6.25

*

*

UTAH

5.95 (4)

1.75% (4)

*

 

VERMONT

6

*

*

VIRGINIA

5 (2)

2.5% (2)

*

*

WASHINGTON

6.5

*

*

 

WEST VIRGINIA

6

 1%

*

 

WISCONSIN

5

*

*

 

WYOMING (3)

4

*

*

 

 

 

 

 

 

DIST. OF COLUMBIA

5.75

*

*

*

 


* - indicates exempt from tax, blank indicates subject to general sales tax rate.
Source: Compiled by FTA from various sources.

  1. Some state tax food, but allow a rebate or income tax credit to compensate poor households. They are: HI, ID, KS, OK, and SD.
  2. Includes statewide local tax of 1.0% in Virginia.
  3. Tax rate may be adjusted annually according to a formula based on balances in the unappropriated general fund and the school foundation fund.
  4. Includes a 1.25% tax levied by state governments in Utah. Food sales are subject to local sales taxes.
  5. Nevada sales tax rate scheduled to fall to 6.5% on July 1, 2013. 

To give you an idea of the wide variety of local sales tax rates, here are rates for America's top ten most visited cities in 2011. (cities source: Concur, rates sources: state revenue dept. sites)

 City State Rate Local Rate Combined Rates
 New York City, NY  4%  4.875%  8.875%
 Las Vegas, NV  6.85% (1)  1.25%  8.10%
 Chicago, IL  6.25%  3.25%  9.5% (2)
 San Francisco, CA  7.25%  1.25%  8.5%
 Orlando, FL  6%  0.5%   6.5%
 Houston, TX  6.25%  2%  8.25% 
 Atlanta, GA  4%  4%   8%
 San Diego, CA  7.25%  0.5%  7.75%
 Charlotte, NC  4.75%  2.5%  7.25%
 Dallas, TX   6.25%  2%  8.25%

 

 

 

 

 

 

 

  1. Nevada's sales tax rate will fall to 6.5% on July 1, 2013.
  2. 2.25% for food & drugs. Add 3% for soft drinks.

At the current time the highest total sales tax rate in the U.S. is 13.725 percent in Tuba City, Ariz. This rate is composed of a 6.6 percent state sales tax, a 1.125 percent county sales tax, and an additional 6 percent local sales tax.

The state with the highest average combined rate (state plus county plus city/town) is Tennessee (9.44 percent).

Five states do not have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Alaska and Montana, however, do allow localities to charge local sales taxes.

2. Special taxes on services used by tourists (hotel and car rental taxes)

As stated above, sales taxes are imposed on merchandise and some food items, but not on services. For example, sales taxes are not applied to hotel room rates, but are applied to room service food and restaurant food that you might charge to your hotel bill.

However, special taxes are often applied to tourist services such as hotel room rates, car rentals, and admission tickets. These special taxes can be substantial; in the case of a hotel room, multiple taxes can add as much as 25-30% to the listed rate of a room. These special taxes are paid by all tourists, including U.S. citizens, and not only to foreign tourists.

Hotel room taxes can be in the form of a percentage tax added, a flat rate per night, or both. One U.S. city has an 18% tax imposed on the room rate together with an additional $10 a night flat tax. If the hotel lists a room rate as $100, the added tax would be $18 plus $10, for a total charge of $128 per night. This does not even consider a service charge that is sometimes levied by the hotel. When making a reservation or developing a budget for your trip, be sure to consider taxes.

Taxes imposed on car rentals can also be substantial. These taxes can also be in the form of a percentage, a flat amount per day, and often both. Like hotels, the daily rates listed by car rental companies often do not include taxes. You may see charges such as "airport access fee" or "recovery fees" listed on your bill. These extra charges may be taxes, but are often only extra charges (like service charges) added to your bill by the seller. Such seller-imposed fees may themselves be subject to taxes.

Some places have amusement, entertainment, or hotel-restaurant taxes. In the case of admission tickets to theme parks or theatres, these taxes are usually included in the stated ticket price. At hotels and restaurants, the tax is usually not included in the menu price or room rate, and for restaurants, may be additional above the sales tax on the food purchased.

3. Import duties on certain items brought into the U.S.

Like most countries, the United States federal government imposes an import tax, or duty, on certain merchandise that is permanently being brought into the country. The duty does not apply to items imported by tourists that will be taken back home with them, but technically does apply to merchandise that is being brought in as a gift to a U.S. resident, because that gift will not be taken back home.

If you bring a camera into the U.S. to use and then take back home with you, no import duty is due. But, if you bring a camera into the U.S. with no intent to take it back home with you because you plan to give it as as a gift or sell it, then an import duty may be due when you pass through U.S. customs upon arriving. Many arriving visitors do not declare small gifts when arriving in the U.S., but if you are carrying valuable items that are obviously gifts (gift-wrapped, or obviously not for your use while on your trip) or merchandise for resale (five identical cameras, all in their original packing), a random search of your baggage could result in a monetary fine, personal detention, or seizure of the merchandise by U.S. customs officials.

If you have any questions, you should consult with customs officials before entering the country, especially for goods of high value.

Import duties are complex, and may not be imposed on certain items or when being imported from certain other countries. Although the standard rate is 10%, the rate table is very detailed, and other higher or lower rates may be applied to certain types of goods.

Merchandise purchased in "duty free" shops is not exempt from a customs duty when subsequently carried into another country.

Consult the separate section on customs for more information. Other important regulations and prohibitions may apply, and failure to comply can result in serious consequences.

4. Income and employment taxes

If any income is earned from U.S. sources while visiting the U.S., taxes may be owed on that income, just as would be expected from a U.S. citizen. This can include federal, state, and local taxes, and taxes for income and special purposes such as the federal Social Security system. Earning income can include not only employment, but also accepting money for services, and selling items at a profit.

Earning income while in the U.S. may violate the conditions of a visitor's visa, and may be illegal. A full discussion of taxes due on U.S.-derived income is beyond the scope of this website.