In the United States, sales tax is a state and local tax added to the purchase price of most goods and some services at the point of sale. Use tax is a form of tax that kicks in when sales tax wasn’t collected at purchase and is paid directly by the buyer to the appropriate state.

The sales tax system in the U.S. is anything but simple. The United States does not have a nationwide Sales tax; each state sets its own sales tax rules.

Out of the 50 states in the U.S., 45 levy sales tax. However, five states have no sales tax. These states are known as NOMAD states, which stand for New Hampshire, Oregon, Montana, Alaska, and Delaware.

Sales tax in the U.S. can be complicated since each of the 45 states has different tax rates and rules that can vary by location. This complexity can create challenges for foreign sellers in the U.S. market and for foreign customers shopping there. For instance, California generally requires foreign buyers outside the U.S. to pay sales or use tax only when they physically receive goods in California. If these customers take possession of the same items outside the U.S., they may be exempt from sales tax. Both buyers and sellers need to understand these distinctions to navigate sales tax requirements properly.

Unlike U.S. federal income taxes, sales and use taxes are generally not governed by U.S. tax treaties. This means treaty benefits that may reduce or eliminate federal income tax typically do not relieve a foreign business of state sales and use tax obligations in the United States.

This article explains how the U.S. sales tax works and helps you demystify it. Understanding these rules is important for foreign businesses seeking to avoid unexpected tax liabilities, penalties, and compliance issues when entering the U.S. market.