August 13 2012
Vicki E. Alger
The Tax Foundation recently released its State and Local Sales Taxes Mid-Year Report. Here’s how the states stack up.
State Sales Taxes
No tax: Five states don’t have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon (but localities can charge sales taxes in Alaska and Montana).
Lowest: Colorado, 2.9 percent, and seven states with a 4 percent rate: Alabama, Georgia, Hawaii, Louisiana, New York, South Dakota, and Wyoming.
Highest: California, 7.25 percent (and that’s after a 1 percent rate reduction that took effect on July 1). Runners-up are: Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee, each with a 7 percent statewide sales tax.
Local Sales Taxes (averages)
Lowest: Mississippi. Its only local sales tax is “a 0.25 percent sales tax in Tupelo, the birthplace of Elvis Presley, with a current population of 34,546.” Salem County, New Jersey is exempt from collecting the 7 percent statewide sales tax. Instead it collects a 3.5 percent local tax.
Highest: Louisiana (4.86 percent), Colorado (4.52 percent), New York (4.48 percent), Alabama (4.37 percent), and Oklahoma (4.18 percent).
Combined State and Local Taxes
Lowest: Hawaii (4.35 percent), Maine (5 percent), Virginia (5 percent), Wyoming (5.18 percent), and Wisconsin (5.43 percent).
Highest: Tennessee (9.43 percent), Arizona (9.12 percent), Louisiana (8.86 percent), Washington (8.83 percent), and Oklahoma (8.68 percent).
And now for the “highest total sales tax rate in the United States”: Tuba City, Arizona, with a combined rate of 13.725 percent (6.6 percent state tax, a 1.125 percent Coconino county tax, and another 6 percent tribal tax levied by the To'Nanees'Dizi local government.”
As the Tax Foundation reports:
Avoidance of sales tax is most likely to occur in areas where there is a significant difference between two jurisdictions' sales tax rates. Research indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas, such as from cities to suburbs. … At the statewide level, businesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates. …State and local governments should be cautious about raising rates too high relative to their neighbors because doing so will amount to less revenue than expected, or in extreme cases, revenue losses despite the higher tax rate. …Of course, sales taxes are just one part of an overall tax structure and should be considered in context. For example, Washington State has high sales taxes but no income tax; Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts.