USA Sales Tax–How Foreign Tourists Can Save Money

The U.S. federal government is:

• The U.S.’s national government
• Superior to all other levels of government
• Based in Washington, D.C.

State governments

• There are 50 U.S. states, each with its own capital city and government
• The State of New York’s capital city, for example, is Albany
• States may create any laws which do not violate federal laws
• Federal laws supersede all state laws
• A state’s laws supersede all local laws in that state

County governments

• U.S. states are divided into counties
• Counties are composed of cities, towns and villages
• New York State, for example, has 62 counties
• Each county has a capital, known as the county seat
• County governments are subordinate to the state & federal governments
• County governments are superior to local governments

Local governments

• Cities, towns and villages are called municipalities
• Each municipality has its own government
• Local governments are subordinate to all levels of government above them

USA consumption taxes

In the 160+ countries that charge VAT¹, it is the national government who imposes this tax.

When tourists visit VAT-charging countries, they may request refunds of the VAT they’ve paid on qualifying purchases. Those refunds are processed by a country’s national government.

In the U.S., however, the federal government never charges a consumption tax. Ever.

Instead, each state decides whether to charge a sales tax and how much it should be.

50 states = 50 different sales tax rates!

Not only that, county and local governments as well as other government entities may also charge their own taxes.

Here’s how the State of Illinois defines sales tax:

” ‘Sales tax’ is the combination of all state, local, mass transit, home rule occupation and use, non-home rule occupation and use, park district, county public safety and facilities, county school facility, and business district taxes. It is imposed on a retailer’s receipts from sales of tangible personal property for use or consumption.”

State of Illinois Revenue Dept.²

Thus, there is no uniform national “USA sales tax.” There are, however, a multitude of state and local taxes that, collectively, are referred to as sales tax.

In the U.S., every level of government except the federal (national) government may impose this tax.

Money-Saving Option 1: Don’t pay the tax

Very simple, right? Just don’t pay it. Easy.

But you said I have to. Correct! You do have to pay it…but only if one exists.

You see, of the 50 U.S. states, four do not charge any consumption taxes whatsoever, including local taxes.

These states are:

1. Delaware
2. Montana
3. New Hampshire
4. Oregon

Alaska’s state government does not impose a sales tax, but some local governments do — and rates in certain municipalities can reach as high as 7.5%. Statewide, taxes on purchases average about 1.82%⁵, but always check the rate for your specific destination.

I once traveled from New York to Delaware specifically to buy computer equipment tax-free.

When I asked the saleswoman whether people come from farther away than New York to shop tax-free in Delaware, she told me about a man who flew in from California to buy a $20,000 limited-edition Apple Watch.

Using Los Angeles’s current sales tax rate of 9.5%, the man would have paid $1,900 in tax, for a total of $21,900. Even if he spent, say, $800 on his flight, hotels, and meals, he still would have saved over a thousand dollars.

It was cheaper for him to fly coast-to-coast than pay California’s taxes! With that said, U.S. sales taxes are still much lower than most countries’ VAT rates.

Money Saving Option 2: Shop in Texas

Earlier we mentioned there is one exception when it comes to sales tax refunds for foreigners: Texas.

Of the 46 states that charge tax, only Texas offers a foreign visitors refund program.

This refund program is similar to requesting VAT refunds in other countries with one big difference: U.S. federal government agents (i.e. airport customs officers) are not involved in validating your refund paperwork. Instead, refunds are handled by private companies.

Texas sales tax refunds for foreign visitors

Texas authorizes several companies to process refunds. These companies handle refunds at offices throughout the state. To qualify for refunds, purchases must be made at participating stores.

Use this online calculator

• Use this online sales tax calculator for the most specific results.
• You’ll need to input a specific address to use this calculator.

Range table

• Don’t need ultra-specific results? Consult a tax range table.
• This method gives you a general idea of rates, but be aware taxes can vary within a county and, sometimes, even within a city.

Look up rates on your own

For most places, just search: (city, state) + sales tax rate.

Sample searches:

• Seattle, Washington sales tax rate
• Los Angeles, California sales tax rate

Unlike in most countries, where VAT is built into the displayed price, U.S. sales tax is added on top at the register. If the tag says $100 and the local rate is 8%, you’ll be charged $108.

To calculate the total cost including sales tax, use:

Item cost x (1 + tax rate)

Reminder: Convert the tax rate to decimal form. New York City’s 8.875% rate, for example, becomes 0.08875.

Example 1:

• Item cost = $112
• Tax rate = 8.875%
• Formula: Item cost x (1 + tax rate)
• $112 x 1.08875 = $121.94 (total cost, including tax)

Example 2:

• Item cost = $112
• Tax rate = 7%
• Formula: Item cost x (1 + tax rate)
• $112 x 1.07 = $119.84 (total cost, including tax)