How Displaying Tax at Checkout Affects Shopping Behavior

While displaying sales tax at checkout may seem like a minor detail in the grand scheme of e-commerce conversions—how and when this tax is presented to customers can play a surprisingly outsized role in the overall shopping experience.

Mainly due to what’s known as "checkout surprise." That moment when a customer, ready to click "Buy Now," is met with unexpected fees that nudge the total just high enough to make them second-guess the purchase. 

It’s a jarring experience that can break trust and lead to an abandoned cart. 

But why is a seemingly minor and very common pricing adjustment such a deal breaker? How can online businesses remain tax compliant without losing customers in the process?

That’s what we aim to find out in this article.

The Psychology Behind the Price Tag

When consumers browse products online, they’re not just scanning for features or aesthetics. They’re subconsciously doing quick math and weighing whether the listed price fits within their mental budget. 

But here's the catch: shoppers tend to zero in on the sticker price, not the final total. 

This is a phenomenon known as price salience — the idea that prominently displayed prices command attention. In turn, less visible costs, like taxes or shipping, fade into the background until it's too late.

Sticking to a Mental Budget

From a behavioral economics perspective, this ties into the theory of mental accounting, a concept introduced by Richard Thaler. 

Consumers tend to categorize money into separate “mental buckets” like groceries, entertainment, splurges, etc. Then they make purchases based on whether the visible price fits the expected budget for that category. 

When a tax is tacked on unexpectedly at checkout, it disrupts that mental calculation, triggering a sudden moment of uncertainty in their decision. 

Struggling With Loss

What compels consumers even more is loss aversion. Where the pain of loss is about twice as intense as the pleasure of an equivalent gain. 

In the context of e-commerce, an unanticipated tax can feel like a small financial loss—one that reduces the psychological value of the product and dampens their buying impulse.

That surprise $4 tax on a $40 item? It’s not just a number — it’s a deal-breaker.

The Role of Trust and Transparency in Online Shopping

In the United States, it's standard practice to list prices without sales tax—an approach so deeply embedded in consumer culture that many shoppers don’t question it. 

By contrast, in countries like Japan, Australia, and across much of Europe, tax-inclusive pricing is the norm. What you see is what you pay.

This difference isn't just about math — it’s about transparency. When a shopper sees one price on a product page and a higher total in the cart, it can disrupt their intention to purchase. 

Even when logically expected, this discrepancy feels like a surprise—and surprises at checkout are rarely good for conversions. According to Statista, 48% of consumers abandoned their carts in 2024 due to higher-than-expected extra costs. And 21% abandoned due to a lack of visibility into final pricing.

So, why do so many e-commerce companies still wait to reveal these additional costs?

Why Most U.S. Businesses Default to Tax at Checkout

It all comes down to the complexity of US sales tax. If sales tax were straightforward, we might live in a world where every product lists its final price — clean, simple, and conversion-friendly. 

But in the U.S., tax compliance isn’t just a box to check — it’s a constantly moving target. Sales tax rates vary not just from state to state but city to city. 

A product that’s taxable in one jurisdiction may be exempt in another. Digital goods, bundled services, food and beverage items — all of these come with their own rules, exemptions, and nuances. 

Many states have also introduced what’s known as economic nexus laws. These require even small businesses with no physical presence in a state to collect and remit tax if their economic activity hits a certain threshold. 

All of this forces sellers to track, calculate, and report tax obligations across potentially dozens of jurisdictions, often with wildly different definitions and filing schedules. Add the growing impact of tariffs on certain goods, and you’ve got a landscape that’s nearly impossible to navigate manually.

So while tax-inclusive pricing may offer a cleaner experience for shoppers, the backend cost to get there — ongoing research, platform customization, risk of error — often outweighs the benefit. 

For many businesses, the choice to calculate sales tax at checkout isn’t a slight against transparency — it’s their only option. Until the system becomes simpler (don’t hold your breath), calculated-at-checkout remains the default. 

Not because it’s ideal, but because it’s manageable.

Alternative Ways to be Transparent Before Checkout

So, is tax-inclusive pricing the only path to transparency? Not necessarily. 

There are a handful of lighter investments you can make to improve trust with your customers without adjusting price presentation. 

Just avoid implementing them all at once. 

As Chief Creative Officer at Above The Fray, Erin Hunt recommends, “The goal isn’t to overhaul everything. Make incremental changes and measure their impact. Otherwise, you’ll have no clear idea what does or doesn’t build trust with your customers.”

Provide Clear Written Notice

A simple way retailers can signal honesty and prepare shoppers for a price change is by clearly stating "sales tax calculated at checkout" early in the experience. It doesn’t fully eliminate the potential for sticker shock, but it does get you out in front of any backlash they may have once it occurs.

Incentivize Larger Purchases

Offering incentives like free shipping or tax offsets once a certain cart threshold is met is a great way to reward customers and increase their average order value. 

Visually displaying their progress and how close they are to an incentive can make them more invested in the final purchase. These aren’t just perks — they provide the right level of transparency to help nudge the customer over the finish line. 

Display Price Comparisons

If your product competes on price, call out how your total price (including tax and shipping) compares to larger competitors. Even if they still see the final price late in the funnel, the shock of a price increase is softened by the perceived savings from purchasing with you.

Real-Time Tax & Shipping Estimators (Pre-Checkout)

Let customers calculate their full cost early — right on the product page or in the cart — by entering their ZIP code or selecting their state. Even better, have a persistent slide-in unit that keeps their cart present and up-to-date. 

With this option, you can even include additional pricing info and an incentive tracker to amp up your level of transparency.

An Automated Tax Solution is Just the Start

The only problem with the solutions we just walked through? 

Many still rely on accurate, up-to-date sales tax calculations to provide any real benefit. Transparency is great, but it doesn’t matter if the numbers behind it are wrong, inconsistent, or manually updated once a quarter. 

That’s when an automated solution, like what Zamp provides, can make all the difference. It handles the complexity of modern sales tax without pulling your team into a black hole of spreadsheets, rate tables, and filing calendars.  

Just remember, transparent pricing is just one factor that can impact conversions. 

Depending on your customers, things like instant checkout, diverse payment options, or more robust security may be more important. If you’re unsure what’s causing customers to bail when shopping, contact Above The Fray for a customer journey and UX assessment. 

We’ll help you identify what’s causing the most friction and implement fixes across your entire conversion funnel. There’s no pressure to commit, we’ll just start with a conversation, explore your problem, and see if we’re the right fit.