15 Apr 2024
7 min read

Why Don’t Retailers Include Sales Tax In Prices?

Unraveling the mystery of US retail prices: a deep-dive into why sales tax isn't included in the listed price.
man checking receipts calculating sales tax
Table of contents

Why Are Prices In The United States Listed Without Sales Tax?

In many countries, the price listed on an item is the full price and exactly what customers will pay. However, in the United States, customers often have to do mental math or be surprised by their total at the checkout because sales tax isn’t included in the price.

What’s the reason behind this shopping tradition, and what does it mean for customers and sellers? Is there a purpose behind the decision? Is it merely how things have always been done or an attempt to trick customers? Let’s dig in and find out.

How We Got Here: Understanding Sales Tax in the U.S. 

To get to the root of the issue, we first need to establish how sales tax works in the United States.

Sales tax was first introduced in the Great Depression and quickly became states' largest single source of tax revenue.

Sales tax is added to the sales of goods and services, typically as a percentage of the purchase price. While there isn’t a federal sales tax in the U.S., most states levy their own local sales tax to bring in revenue for the government at the state and local levels. In 2020, state governments collected $341 billion or 15% of their entire revenue from sales tax. Some states, including Nevada and Washington, earned close to 25% of their total revenue from sales tax, trickling down to around 5% for some states, like Vermont.

State sales tax revenue typically funds government programs and services, including healthcare, infrastructure, and education.

It’s important to note that although they don’t earn any revenue from the tax, businesses in each state are responsible for collecting sales tax and remitting it to the government. For businesses operating in multiple states, that means figuring out the local state's tax rate and adding it to the purchase price. Today’s shopping environment is dominated by online sales, but the amount is calculated based on the shipping location, not where the company is based. That means a customer ordering an item online in Oregon won’t pay any sales tax because there isn’t a state sales tax, even if the company is based in a state with a local sales tax. Conversely, a customer purchasing an item online from an Oregon-based company who lives in Texas will pay their state’s 6.25% sales tax on the item’s purchase price.

In addition to state sales tax, local governments can also charge an additional tax. In fact, 38 states also charge local sales tax, typically at a county or city level, with revenue going directly to the local government where it is collected. Areas can have multiple local sales taxes, such as a county, city, and even a special tax used to fund things like business development or infrastructure.

Why Aren’t Prices Listed With Sales Tax?

Sales tax isn’t included for every item. In almost every state, items like food, medicine, and energy don’t have sales tax added. But nearly every item has a state or local sales tax that often isn’t listed in the price. 

There’s not one simple answer for why retailers in the U.S. don’t include sales tax in their prices. Here are a few of the top factors:

Sales tax has never been included

Sales tax started in the U.S. as an experiment of sorts during the Great Depression. Only a handful of states enacted a tax, and some weren’t even sure it would be effective. For that reason, they didn’t change their pricing structure. That tradition continues today, and the most basic reason why sales tax isn’t included is that it is simply how things have always been done.

Sales tax rates vary across states and localities

Another significant factor is that sales tax rates vary from state to state, and often even within cities and counties in the same state. A customer may pay a certain amount of sales tax in one state but be able to cross the border and pay a different rate. There are more than 7,000 tax jurisdictions in the U.S., meaning potentially 7,000 different total prices. And since 2004, there have been more than 3,000 changes to tax rates in the U.S. — all of which means an incredible amount of rates and calculations for retailers to stay on top of.

The base price of the item is the same, but the total cost is different based on where the store is located. In that sense, posting the total price, including sales tax, is confusing and can cause more work for retailers. With sales tax included on the ticket price, a retailer with stores in multiple locations would have to calculate the total sales tax at each location and then print separate price tags for each store. This cumbersome practice opens up a new can of worms, especially around customers returning items at locations different from where they purchased them.

Because sales tax rates vary so much across states and countries, it’s easier for retailers to print a single tag with the base price and use automated point-of-sale systems to add the tax at checkout. Businesses don’t receive revenue from sales tax, so printing multiple price tags would be a costly endeavor with no real return.

Separating sales tax streamlines tax filing

Even if a business includes sales tax in the price of an item, it is still required to break out how much sales tax it collects on each transaction when it files its taxes. That means that by including tax in the base price, retailers are creating more work for themselves when their taxes are due — potentially leading to a cumbersome and costly process of separating sales tax amounts from purchase prices retroactively.

On the other hand, retailers that don’t include sales tax in the purchase price can more easily calculate the sales tax collected for each transaction as they go, streamlining the process and making for an easier and more accurate filing process when tax time rolls around.

Price tag not including sales tax in listed price

How Do Other Countries Compare?

How do practices in the U.S. compare to other countries? In many other countries, sales tax (which is really a value-added tax [VAT] on ALL goods and services at a federal level) is included in the listed price, meaning the price on the barcode or sales tag is the total price the consumer will pay. This is most notable throughout Europe because the practice is mandated by the EU, requiring all retailers to include VAT.

Sales Tax Impacts Shoppers

When discussing the pros and cons of including sales tax in prices, the biggest argument is that not including sales tax makes things more difficult for customers, who can often be left with sticker shock when they see the final tax-included price. Shopping is financial, but it’s also mental. The psychology and mindset of shoppers directly impact what they’re willing to buy and how much they’re willing to spend. Most shoppers in the U.S. are used to knowing that the prices they see on signs and tags aren’t what they will actually pay, and over time, many develop a fairly accurate idea of how much to mentally add for sales tax.

However, customers aren’t always accurate in their sales tax calculations, which can lead to inaccuracies and challenges, especially in cash-only transactions that leave retailers with a smattering of coins instead of an even price.

Studies have found that when sales taxes increase, customers stock up on items in preparation. That might lead to negligible savings for customers, but mentally, they can feel better about buying items at a lower sales tax rate. The same could be applied to adding sales tax to the total price: customers may stock up on items at lower tax rates, even if it only leads to small savings.

Impact on Businesses

Not including sales tax in the purchase price allows businesses to set the same price across all tax areas. For example, a product listed for $100 will cost customers a different total amount if they are in California, with its 7.25% tax rate, or Maine, with its 5.5% rate. But regardless of what the customer is paying, the retailer takes home $100 for each product — exactly what it had on the sales price.

However, if businesses include sales tax in the price, they are left with a sticky situation: earn less for each item in states with higher sales tax rates or risk the poor optics of pricing items higher or lower based on a state’s sales tax rate. If a retailer prices its product at $100, including sales tax, its tax-home revenue will vary depending on the state. Those differences may be small (including pennies per purchase) but can lead to a substantial difference in take-home revenue over time.

By not including sales tax in the total price, retailers have more flexibility with their point-of-sale system and can streamline pricing across the entire business, especially ones that cross state lines.

Is Sales Tax Tradition Changing?

Much like the tax rates themselves, the rules and regulations of sales tax change regularly. Some states make it illegal for retailers to include sales tax in their purchase price. In Washington state, it was illegal for businesses to include sales tax in the total price until a court case in 2012 changed the decision. Now, retailers and restaurants can include sales tax in the listed price only if they clearly indicate that tax is included.

In other states, including California, retailers can post a sign that states “All Prices Include Sales Tax” but must follow certain regulations.

With a handful of states re-evaluating their sales tax regulations in recent years, there’s a chance that other states could start to reconsider how they approach sales tax in prices, especially with a growing focus on customer rights. So, while the United States is firmly established as a sales tax added at checkout tradition, there’s no promise that the practice will last forever.If you want to learn more about preparing your business with a smooth sales tax process year-round, contact Peisner Johnson to get started with a customized sales tax system for your business needs.


The practice of excluding sales tax from the listed prices in the United States is deeply rooted in historical, geographical, and commercial complexities. While it may initially seem inconvenient or confusing, especially to those from countries where taxes are included in the price, this system reflects the diverse tax jurisdictions and the dynamic nature of sales tax rates across states and localities. For businesses, it allows for a consistent base price across multiple locations, although it does present challenges in terms of calculating and collecting the correct amounts. As customers, understanding this practice can help us make informed purchasing decisions and anticipate the final cost at checkout.
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