This week’s tax map shows state and local sales tax rates in each state as of January 1, 2016 and comes from our larger report on sales taxes released earlier today. While consumers might be aware of the statewide sales tax rate, local sales taxes can differ widely, so our population-weighted average allows for comparability across states.
The five states with the highest average combined state-local sales tax rates are:
- Tennessee (9.46%)
- Arkansas (9.30%)
- Louisiana (9.00%)
- Alabama (8.97%)
- Washington (8.89%)
The five states with the lowest average combined state-local sales tax rates are:
- Alaska (1.78%)
- Hawaii (4.35%)
- Wisconsin (5.41%)
- Wyoming (5.42%)
- Maine (5.50%)
Sales tax rates are important, but are only half of the equation. Sales tax bases (e.g., the structure of sales taxes, defining what is taxable and non-taxable) are also a major consideration. 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.
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, whereas 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.
Read our full report on state and local sales tax rates to learn more.