It won’t surprise anyone to learn that sales taxes in Washington are among the highest in the nation, although it might surprise some that California, known for its progressive income tax, has the highest state sales tax rate.
The Tax Foundation has released its annual look at sales taxes across the country. The map above shows the combined state and local sales tax rates in the 50 states and DC.
Five states do not have statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska allows localities to charge local sales taxes.
The five states with the highest average combined state and local sales tax rates are Louisiana (9.55 percent), Tennessee (9.547 percent), Arkansas (9.48 percent), Washington (9.29 percent), and Alabama (9.22 percent). The five states with the lowest average combined rates are Alaska (1.76 percent), Hawaii (4.44 percent), Wyoming (5.39 percent), Wisconsin (5.43 percent), and Maine (5.50 percent).
Of the five states with the highest rates, Tennessee and Washington are the only two with no income tax.
The easiest comparison is with state-only rates.
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.
No state rates have changed since April 2019, when Utah’s state-collected rate increased from 5.95 percent to 6.1 percent.
Four of the top five states have income taxes.
Now to the local rates.
The five states with the highest average local sales tax rates are Alabama (5.22 percent), Louisiana (5.10 percent), Colorado (4.82 percent), New York (4.52 percent), and Oklahoma (4.45 percent).
All are in states with income taxes. And to us they look awfully high.
Much more at the link, including a discussion of the competitive effects.
State and local governments should be cautious about raising rates too high relative to their neighbors because doing so will yield less revenue than expected or, in extreme cases, revenue losses despite the higher tax rate.