How are sales tax rates determined in the United States?

Sales tax rates in the United States are determined by each state. This allows for significant variation across the country, as each state has the authority to establish its own tax laws and rates based on their revenue needs, economic conditions, and policy objectives. Some states may also allow local municipalities to impose additional sales taxes, leading to a further diversification of tax rates within the state, but the foundational structure and overall rate are set at the state level.

The federal government does not impose sales tax directly, which is why it is not the correct answer. While local municipalities may set additional sales taxes, their rates are dependent on the state laws. Industry standards do not influence sales tax rates because taxes are primarily a government function, not governed by business practices. Therefore, identifying that states determine these rates is crucial to understanding the tax landscape in the U.S.