How High Are Sales Taxes in Your State?

September 18, 2014

Scott Drenkard

Scott Drenkard,

This week's map shows the state sales tax rate, plus the average local rate, for each state as of July 1, 2014. This data comes from a bi-annual sales tax report we released yesterday which details each state’s statewide sales tax rate, along with its maximum and average local sales tax rates.

Tennessee has the highest average combined rate at 9.45%, and is followed closely by Arkansas (9.24%) and Louisiana (8.91%). On the other end of the spectrum are states with no sales taxes: Delaware, Montana, New Hampshire, and Oregon.

(Click on the map to enlarge it. All maps and other graphics may be published and reposted with credit to the Tax Foundation.)

One thing that is important to remember here is that state and local tax rates are only part of the total sales tax story. Equally important are sales tax bases—what the tax applies to—which can have a palpable impact on how much the tax collects in revenue and how the tax effects the economy. In this regard, Hawaii is generally considered to have the broadest sales tax rate, as their “General Excise Tax” taxes many products multiple times in the production chain as opposed to just one time at the point of final consumption.

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A tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities.

The tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates.

A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding.

An excise tax is a tax imposed on a specific good or activity. Excise taxes are commonly levied on cigarettes, alcoholic beverages, soda, gasoline, insurance premiums, amusement activities, and betting, and typically make up a relatively small and volatile portion of state and local and, to a lesser extent, federal tax collections.