Where Does Your Sales Tax Go? How Shopping Helps Fund Schools, Roads and Local Services

Short answer: the sales tax on your receipt mostly flows into state and local general funds. Those funds pay for schools, health programs, roads, police and courts. Nationally, general sales taxes raised about 12.9% of state and local general revenue in 2023. In some states it's closer to a quarter. Here's where the money comes from, where it goes and what buying local does and doesn't change.

How much do states and cities rely on sales tax?

State and local governments collected about $4.63 trillion in general revenue in 2023, according to Census data compiled by the Lincoln Institute of Land Policy. Sales tax is one of several big pieces:

"All other" combines selective sales taxes (5.4%), corporate income taxes (3.6%), other taxes (3.6%) and miscellaneous general revenue (7.3%). Total general revenue was about $4.63 trillion. Shares may not sum to 100 because of rounding.

Source: Lincoln Institute of Land Policy, from U.S. Census Bureau data

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Source	Share of general revenue (%)
Federal aid	26.8%	26.7%
Property taxes	14.8%	14.8%
Charges and fees	14.8%	14.8%
General sales taxes	12.9%	12.9%
Individual income taxes	11%	11.0%
All other	19.9%	19.9%

The largest single source is federal aid (26.8%). Property taxes and charges and fees, such as tuition and hospital charges, each supplied about 14.8%. General sales taxes, the kind charged on most purchases at the register, brought in 12.9%. Selective sales taxes, on specific goods like fuel, alcohol and tobacco, added another 5.4%.

The Tax Policy Center, using 2021 data, puts general sales and gross receipts taxes at $477 billion: about $370 billion for states (14% of their general revenue) and $107 billion for local governments (5%).

Which states depend most on sales tax?

It depends heavily on where you live:

Delaware, Montana and New Hampshire: 0%. Alaska and Oregon, which have no statewide sales tax, show small shares (2.3% and 1.9%) in the Census data.

Source: Lincoln Institute of Land Policy, from U.S. Census Bureau data

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State	General sales tax share (%)
Nevada	26.0%
Washington	25.5%
Tennessee	22.8%
South Dakota	22.4%
Hawaii	21.4%
Arizona	21.0%
Texas	19.2%
U.S. average	12.9%
West Virginia	8.3%
Virginia	8.1%
Maryland	7.8%
Vermont	5.8%

States without a personal income tax on wages tend to lean hardest on sales taxes. In Nevada, general sales taxes supplied about 26.0% of state and local general revenue in 2023. Washington was at 25.5%, Tennessee 22.8%, South Dakota 22.4% and Texas 19.2%. At the other end, Vermont relied on sales tax for just 5.8%, and Delaware, Montana and New Hampshire collected none.

According to the Tax Policy Center, five states have no statewide general sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. 38 states, including Alaska, let local governments add their own general sales taxes. That's why the rate can differ from one town to the next.

What does sales tax actually pay for?

Sales tax usually isn't tied to one program. It goes into the general fund alongside other revenue. So the best way to see what it supports is to look at how state and local governments spend overall:

Total direct general spending was about $3.7 trillion. Remaining spending covers categories not shown, such as interest, utilities, parks and administration.

Source: Urban Institute, State and Local Finance Initiative

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Category	Share of direct general spending (%)
Public welfare	23%
K–12 education	21%
Health and hospitals	10%
Higher education	8%
Highways and roads	6%
Police	4%
Corrections	2%
Housing and community dev.	2%
Courts	1%

In fiscal 2021, state and local governments spent about $3.7 trillion directly, according to the Urban Institute. Public welfare, which includes Medicaid, was the largest share at 23%. K–12 education was close behind at 21%. For local governments alone, K–12 schools took 39% of direct spending. Health and hospitals (10%), higher education (8%) and highways and roads (6%) followed.

Schools are a good example of how the layers fit together. The Urban Institute says K–12 funding comes about 46% from states, 44% from local governments and 11% from the federal government. States also transferred about $621 billion to local governments in 2021. So a dollar of state sales tax paid in one town can end up funding classrooms across the state.

Is everything taxed the same way?

No. Rules vary a lot by state. According to the Tax Policy Center, 12 states taxed groceries in 2023, and six of those taxed grocery food at a lower rate than other purchases. 18 states held sales tax holidays in 2023, usually short back-to-school windows when items like clothing and school supplies are tax-free. Services are trickier. All states tax some services, but very few tax professional services like those of doctors and lawyers. Hawaii and New Mexico are exceptions that tax a wide range of services.

Do online purchases pay sales tax too?

Usually, yes, and this is where many "shop local" claims go wrong. For years, a 1992 Supreme Court ruling (Quill) meant out-of-state sellers didn't have to collect sales tax unless they had a physical presence in your state. In 2018, South Dakota v. Wayfair overturned that rule. According to the Tax Policy Center, every state with a sales tax now requires remote sellers and marketplace facilitators to collect it. Amazon has collected sales tax in every sales-tax state since April 2017.

So the honest answer is that a purchase online and the same purchase down the street often generate similar sales tax for your state.

So what does buying local add?

The difference is in everything around the sale:

• Property taxes. Property taxes made up 14.8% of state and local revenue in 2023 and are the backbone of many school district budgets. A shop on Main Street pays them on its building, directly or through its rent. A warehouse in another state pays them somewhere else.
• Local jobs and payroll. A local business employs people who live in the community, and in states with an income tax, their wages are taxed there too.
• Local ownership. Profits from an independent shop go to an owner who lives nearby and is likely to spend locally. We dig into that in why buying local matters.

Buying products made locally or in the U.S. pushes the effect further up the supply chain, to the factories, farms and their workers. Our Small Business Saturday guide has more on supporting independent retailers.

What are some easy ways to shop local this season?

Start with a local shop or farmers market, and look for goods made in your own state. A few American-made favorites from our directory:

Savannah Bee Company honey comes from Georgia, Red Gold tomatoes are canned in Elwood, Indiana, and Fiesta dinnerware is made in Newell, West Virginia. Find makers near you on our browse-by-state pages, from Georgia to West Virginia.