Ranking Sales Taxes on the 2019 State Business Tax Climate Index

October 17, 2018

Today we continue our map series on the 2019 State Business Tax Climate Index with a map showing states’ rankings on the Index’s sales tax component. The sales tax component accounts for 25.3 percent of each state’s overall Index score.

A state’s sales tax rate and structure can make a state more or less attractive to businesses for two key reasons: (1) some states apply the sales tax to business inputs, which drives up the costs of production, and (2) as sales tax rates increase, consumers may cut back on purchases or move their shopping to lower-tax jurisdictions.

An ideal sales tax applies to a broad base of final consumer goods and services, with few exemptions, and is levied at a low rate. Broad-based, low-rate tax structures minimize tax-induced economic distortions that can occur when consumers alter their purchasing behavior due to tax differentials. In addition, sales tax exemptions narrow the tax base, driving up the sales tax rate on those goods and services that remain subject to the tax, making the rate higher than otherwise necessary.

Importantly, a well-structured sales tax applies to the end-user at the point of sale but does not apply to the sale of machinery, raw materials, and other business inputs, as those taxes increase the costs of production and ultimately get passed along to consumers in the form of higher prices. States that avoid taxing business inputs perform better on the Index.

How does your state rank on sales taxes? 2019 state sales tax rankings

As shown on the map above, the highest-scoring states are those without a state sales tax: New Hampshire, Delaware, Montana, Oregon, and Alaska. The states with the next best scores–Wyoming, Maine, Wisconsin, Nebraska, Virginia, Michigan, and Indiana–have well-structured sales taxes and modest excise tax rates.

The lowest-scoring states on this component are states that have high sales tax rates, high excise tax rates, or apply the sales tax to a variety of business inputs. The states with the lowest scores on this component are Louisiana, Washington, Alabama, Arizona, Tennessee, and New Jersey.

To learn more about your state’s score on the sales tax component, click here.

To see whether your state’s sales tax structure has become more or less competitive in recent years, check out the table below.

Sales Tax Component of the State Business Tax Climate Index (2016–2019)
  2016 Rank 2017 Rank 2018 Rank 2019 Rank Rank Change from 2018 to 2019

Note: A rank of 1 is best, 50 is worst. All scores are for fiscal years. DC’s score and rank do not affect other states. Source: Tax Foundation.

Alabama 48 48 48 48 0
Alaska 5 5 5 5 0
Arizona 46 47 47 47 0
Arkansas 47 44 44 44 0
California 42 40 41 43 -2
Colorado 39 39 39 38 +1
Connecticut 30 29 28 30 -2
Delaware 1 1 1 2 -1
Florida 22 22 22 22 0
Georgia 35 34 29 29 0
Hawaii 24 26 26 24 +2
Idaho 28 27 27 26 +1
Illinois 34 35 35 36 -1
Indiana 17 12 10 12 -2
Iowa 19 20 19 19 0
Kansas 33 28 31 31 0
Kentucky 14 13 14 14 0
Louisiana 49 50 50 50 0
Maine 8 8 8 7 +1
Maryland 16 17 18 18 0
Massachusetts 18 18 13 13 0
Michigan 10 11 12 11 +1
Minnesota 26 25 25 27 -2
Mississippi 38 38 38 35 +3
Missouri 25 24 24 25 -1
Montana 3 3 3 3 0
Nebraska 9 9 9 9 0
Nevada 40 41 42 40 +2
New Hampshire 2 2 2 1 +1
New Jersey 44 45 46 45 +1
New Mexico 41 42 40 41 -1
New York 43 43 43 42 +1
North Carolina 20 19 20 20 0
North Dakota 32 32 32 32 0
Ohio 29 31 30 28 +2
Oklahoma 36 36 36 39 -3
Oregon 4 4 4 4 0
Pennsylvania 21 21 21 21 0
Rhode Island 23 23 23 23 0
South Carolina 31 30 33 34 -1
South Dakota 27 33 34 33 +1
Tennessee 45 46 45 46 -1
Texas 37 37 37 37 0
Utah 13 16 17 16 +1
Vermont 15 15 16 15 +1
Virginia 11 10 11 10 +1
Washington 50 49 49 49 0
West Virginia 12 14 15 17 -2
Wisconsin 7 7 7 8 -1
Wyoming 6 6 6 6 0
District of Columbia 27 27 27 25 +2

To learn more about how we determined these rankings, read our full methodology here.

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