State and Local Sales Tax Rates in 2017
by Jared Walczak and Scott Drenkard, The Tax Foundation, January 31, 2017
- Forty-five states and the District of Columbia collect statewide sales taxes.
- Local sales taxes are collected in 38 states.
- The five states with the highest average combined state and local sales tax rates are Louisiana (9.98 percent), Tennessee (9.46 percent), Arkansas (9.30 percent), Alabama (9.01 percent), and Washington (8.92 percent).
- Sales tax rates differ by state, but sales tax bases also impact how much revenue is collected from a tax and how the tax affects the economy.
- Sales tax rate differentials can induce consumers to shop across borders or buy products online.
Retail sales taxes are one of the more transparent ways to collect tax revenue. While graduated income tax rates and brackets are complex and confusing to many taxpayers, sales taxes are easier to understand; consumers can see their tax burden printed directly on their receipts.
In addition to state-level sales taxes, consumers also face local sales taxes in 38 states. These rates can be substantial, so a state with a moderate statewide sales tax rate could actually have a very high combined state and local rate compared to other states. This report provides a population-weighted average of local sales taxes as of January 1, 2017, in an attempt to give a sense of the average local rate for each state. Table 1 provides a full state-by-state listing of state and local sales tax rates.
Five states do not have statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska and Montana allow localities to charge local sales taxes.
The five states with the highest average combined state and local sales tax rates are Louisiana (9.98 percent), Tennessee (9.46 percent), Arkansas (9.30 percent), Alabama (9.01 percent), and Washington (8.92 percent).
The five states with the lowest average combined rates are Alaska (1.76 percent), Hawaii (4.35 percent), Wyoming (5.40 percent), Wisconsin (5.42 percent), and Maine (5.5 percent).
California has the highest state-level sales tax rate, at 7.25 percent. Four states tie for the second-highest statewide rate, at 7 percent: Indiana, Mississippi, Rhode Island, and Tennessee. The lowest non-zero, state-level sales tax is in Colorado, which has a rate of 2.9 percent. Five states follow with 4 percent rates: Alabama, Georgia, Hawaii, New York, and Wyoming.
While still the highest state sales tax rate in the nation, California’s state rate did decrease slightly, from 7.5 percent to 7.25 percent, due to the expiration of Proposition 30. Elsewhere, New Jersey’s state sales tax rate fell from 7 percent to 6.875 percent as part of a broader tax reform package which also increased the state’s motor fuel tax and began phasing out the estate tax. The state sales tax is scheduled to decline further to 6.625 percent in 2018. No other states changed their state-level sales tax in January.
Sales Tax Bases: The Other Half of the Equation
This report ranks states based on tax rates and does not account for differences in tax bases (e.g., the structure of sales taxes, defining what is taxable and nontaxable). States can vary greatly in this regard. For instance, most states exempt groceries from the sales tax, others tax groceries at a limited rate, and still others tax groceries at the same rate as all other products. Some states exempt clothing or tax it at a reduced rate.
Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain. These recommendations would result in a tax system that is not only broad-based but also “right-sized,” applying once and only once to each product the market produces. Despite agreement in theory, the application of most state sales taxes is far from this ideal.
Hawaii has the broadest sales tax in the United States, but it taxes many products multiple times and, by one estimate, ultimately taxes 99.21 percent of the state’s personal income. This base is far wider than the national median, where the sales tax applies to 34.46 percent of personal income.
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