Seattle and Tacoma impose the 7th highest combined state and local sales tax rate in the nation, according to the Tax Foundation, which published the table shown above. Washington, of course, is known for being a state that relies heavily on the sales tax, so the ranking may not be much of a surprise.
The two cities at the top of the rankings, however, may be more surprising.
Last year, Chicago, Illinois, vaulted to the top of the list of cities imposing the highest combined state and local sales tax in the nation when a county tax increase brought the total rate to 10.25 percent, a dubious distinction it now shares with Long Beach, California, which reached 10.25 percent on July 1, 2017, following the implementation of both city and county sales tax rate increases.
Both Illinois and California impose progressive income taxes. The next cities in the rankings are also from states with income taxes.
Four cities trail closely behind at 10 percent: Birmingham and Montgomery, Alabama, and Baton Rouge and New Orleans, Louisiana.
The Tax Foundation points out that rates are just half the sales tax equation. The tax base is the other half.
This report ranks states and cities based on tax rates and does not account for differences in tax bases (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. The taxation of services and business-to-business transactions also varies widely by state.
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.
There’s also a border problem.
Sales tax avoidance 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.
On cue, the Columbian reports on sales tax losses to Vancouver and Clark County as a result of tax avoidance.