Map of State Sales Tax Rates

This week’s tax map shows state and local sales tax rates in each state as of January 1, 2015 and comes from our larger report on sales taxes released earlier this week. 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.

LOST--2015

This ranking is useful for a state like Colorado, where the statewide sales tax is 2.9 percent (very low), but local sales taxes add on an additional 4.54 percent on average, meaning consumers face a combined rate of 7.44 percent, the 15th highest in the country.

The five states with the highest average combined state-local sales tax rates are Tennessee (9.45 percent), Arkansas (9.26 percent), Alabama (8.91 percent), Louisiana (8.91 percent), and Washington (8.89 percent).

The five states with the lowest average combined rates are Alaska (1.76 percent), Hawaii (4.35 percent), Wisconsin (5.43 percent), Wyoming (5.47 percent), and Maine (5.50 percent).

These rates are important because sales tax policy is one of the ways that states can compete. At the statewide level, businesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates. A stark example of this occurs in the Northeast, where even though I-91 runs up the Vermont side of the Connecticut River, many more retail establishments choose to locate on the New Hampshire side to avoid sales taxes. One study shows that per capita sales in border counties in sales tax-free New Hampshire have tripled since the late 1950s, while per capita sales in border counties in Vermont have remained stagnant.

The state of Delaware actually uses its highway welcome sign to remind motorists that Delaware is the “Home of Tax-Free Shopping.” 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.

State and Local Sales Tax Data for 2015

How does your state compare to its neighbors?
Washington, DC (Apr 8, 2015)—This morning, the nonpartisan Tax Foundation released an updated report of sales taxes throughout the states in 2015. Using a population-weighted average of local sales taxes, the report details the combined state and local sales tax rates for each state and explains how sales taxes fit into a state’s overall tax structure.
The key findings include:
• 45 states collect statewide sales taxes.
• 38 states collect local sales taxes.
• The five states with the highest average combined state-local sales tax rates are Tennessee (9.45 percent), Arkansas (9.26 percent), Alabama (8.91 percent), Louisiana (8.91 percent), and Washington (8.89 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.
• Differences in sales tax rates cause consumers to shop across borders or buy products online.
“Sales taxes are some of the most easily understood taxes because every time a consumer makes a purchase, they can see the rate on the receipt,” says Tax Foundation Economist Scott Drenkard.
Our study addresses the fact that 38 states allow local governments to levy sales taxes within their jurisdiction. These local rates, when combined with the statewide rates, can result in substantially larger tax bites.
“Of course, sales taxes are just one part of an overall tax structure and should be considered in context,” adds Drenkard. “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.”
Full report: http://taxfoundation.org/article/state-and-local-sales-tax-rates-2015