Ranking Sales Taxes on the 2022 State Business Tax Climate Index

May 24, 2022

Today we continue our map series on the 2022 State Business Tax Climate Index with a map showing states’ rankings on the Index’s sales and excise tax component. The 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. The sales tax component accounts for 23.7 percent of each state’s overall Index score.

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 people change their purchasing behavior because of tax differences. 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 or forcing greater reliance on less economically efficient taxes.

It is important to note that a well-structured sales tax applies only to the final consumer at the point of sale. It 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.

This section of the Index also looks at how states apply their sales taxes to remote sellers. While most states have adopted appropriate safe harbors for small sellers and have a single point of administration for all state and local sales taxes, a few are penalized because they diverge from these practices, imposing substantial compliance costs on out-of-state retailers.

Ranking sales taxes on the State Business Tax Climate Index See 2022 sales tax rankings to see how your state ranks on sales taxes

As shown on the map, the highest-scoring states on the sales tax component of the 2022 Index are those without a state sales tax: New Hampshire, Delaware, Montana, Oregon, and Alaska. (They do not receive perfect scores because each state does impose excise taxes with varying degrees of competitiveness, and Alaska permits local sales taxes.) The states with the next best scores—Wyoming, Wisconsin, Maine, Idaho, Michigan, Virginia, and Massachusetts—have well-structured sales taxes and modest excise tax rates.

States that rank poorly on this component have high sales tax rates, high excise tax rates, complicated sales tax administration, and apply the sales tax to a variety of business inputs while exempting many final consumer purchases. The lowest-scoring states are Alabama, Washington, Louisiana, California, and Tennessee.

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 following table.

How Does Your State Rank on Sales Taxes?
Sales Tax Component of the State Business Tax Climate Index (2019–2022)
State 2019 Rank 2020 Rank 2021 Rank 2022 Rank Change from 2021 to 2022
Alabama 50 50 50 50 0
Alaska 5 5 5 5 0
Arizona 40 40 40 40 0
Arkansas 45 46 46 45 1
California 46 45 45 47 -2
Colorado 37 37 36 38 -2
Connecticut 29 26 25 23 2
Delaware 2 2 2 2 0
Florida 22 23 23 21 2
Georgia 35 33 32 33 -1
Hawaii 32 29 28 28 0
Idaho 12 11 9 9 0
Illinois 34 34 39 39 0
Indiana 13 20 20 19 1
Iowa 18 14 14 15 -1
Kansas 27 38 37 27 10
Kentucky 19 13 13 13 0
Louisiana 48 48 48 48 0
Maine 8 8 8 8 0
Maryland 17 19 18 26 -8
Massachusetts 10 12 12 12 0
Michigan 14 10 10 10 0
Minnesota 26 28 27 29 -2
Mississippi 36 32 31 32 -1
Missouri 25 24 24 25 -1
Montana 3 3 3 3 0
Nebraska 11 15 15 14 1
Nevada 44 44 44 44 0
New Hampshire 1 1 1 1 0
New Jersey 42 42 42 43 -1
New Mexico 41 41 41 41 0
New York 43 43 43 42 1
North Carolina 24 21 21 20 1
North Dakota 30 27 29 30 -1
Ohio 28 31 34 35 -1
Oklahoma 39 39 38 37 1
Oregon 4 4 4 4 0
Pennsylvania 21 17 17 17 0
Rhode Island 23 25 26 24 2
South Carolina 33 30 30 31 -1
South Dakota 31 35 33 34 -1
Tennessee 47 47 47 46 1
Texas 38 36 35 36 -1
Utah 15 22 22 22 0
Vermont 20 16 16 16 0
Virginia 9 9 11 11 0
Washington 49 49 49 49 0
West Virginia 16 18 19 18 1
Wisconsin 7 7 7 7 0
Wyoming 6 6 6 6 0
District of Columbia 31 36 34 37 -3

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.

Errata: The original post contained incorrect numbers in the ranking table. The post has now been updated to reflect these changes.


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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.