TaxA 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. Foundation Fiscal Fact No. 291
Introduction
Retail sales taxA 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. es are a transparent way to collect tax revenue. While graduated income tax rates and brackets are complex and confusing to many taxpayers, the sales tax is easier to understand: people can reach into their pocket and see the rate printed on a receipt.
Less known, however, are the local sales taxes collected in 36 states. These rates can be substantial, so a state with a moderate state sales tax rate could actually have a very high combined state-local rate compared to other states. This report provides a population-weighted average of local sales taxes in each state in an attempt to give a sense of the statutory local rate for each state.
Combined Rates
Five states do not have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. Of these, Alaska and Montana[1] allow localities to charge local sales taxes.
In Alaska, high local rates in populous places like Juneau and Kodiak (5 and 6 percent, respectively) certainly increase the average local rate, but not enough to give Alaskans a higher combined rate than any state that charges a statewide rate.
The five highest combined rates are Tennessee (9.45 percent), Arizona (9.12 percent), Louisiana (8.85 percent), Washington (8.80 percent), and Oklahoma (8.66 percent).
Among the states with a statewide sales tax, the five with the lowest average combined rates are Hawaii (4.35 percent), Maine (5 percent), Virginia (5 percent), Wyoming (5.34 percent), and Wisconsin (5.43 percent).
The highest total sales tax rate in the United States is in Tuba City, Arizona, which has a combined rate of 13.725 percent. This rate is composed of a 6.6 percent state tax, a 1.125 percent Coconino county tax, and an additional 6 percent tribal tax levied by the To'Nanees'Dizi local government. [2], [3]
State Rates
California, despite a 1 percent reduction in its sales tax rate that took effect July 1, 2011, still has the highest state-level rate at 7.25 percent.[4] Five states tie for the second-highest statewide rate with 7 percent each: Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee.
The lowest non-zero statewide sales tax is in Colorado, with a rate of 2.9 percent. Seven states follow with 4 percent: Alabama, Georgia, Hawaii, Louisiana, New York, South Dakota and Wyoming[5].
Local Rates
The five states with the highest average local sales tax rates are Louisiana (4.85 percent), Colorado (4.54 percent), New York (4.48 percent), Alabama (4.33 percent), and Oklahoma (4.16 percent).
Mississippi has the lowest non-zero average local rate of 0.004 percent, attributable to the state's only local sales tax: a 0.25 percent sales tax in Tupelo, the birthplace of Elvis Presley, with a current population of 34,546.[6]
The highest city rate is 7 percent in Wrangell, Alaska, which–thanks to its small population (Census estimates 2,369 people)–does not have a substantive effect on the average local rate.
New Jersey has a unique system where certain shoreline and border jurisdictions are exempt from collecting the 7 percent state tax and instead collect a 3.5 percent local tax. We represent this anomaly as a negative 0.03 percent statewide average local rate, and the combined rate reflects this subtraction.
Table 1: State and Local Sales Tax Rates, As of January 1, 2012
| State | State Tax Rate | Rank | Avg. Local Tax Rate (a) | Combined Rate | Rank |
|---|---|---|---|---|---|
| Ala. | 4.00% | 38 | 4.33% | 8.33% | 8 |
| Alaska | None | 46 | 1.77% | 1.77% | 46 |
| Ariz. | 6.60% | 9 | 2.52% | 9.12% | 2 |
| Ark. | 6.00% | 16 | 2.58% | 8.58% | 6 |
| Calif. (b) | 7.25% | 1 | 0.86% | 8.11% | 12 |
| Colo. | 2.90% | 45 | 4.54% | 7.44% | 15 |
| Conn. | 6.35% | 11 | None | 6.35% | 31 |
| Del. | None | 46 | None | 0.00% | 47 |
| Fla. | 6.00% | 16 | 0.62% | 6.62% | 29 |
| Ga. | 4.00% | 38 | 2.84% | 6.84% | 24 |
| Hawaii (c) | 4.00% | 38 | 0.35% | 4.35% | 45 |
| Idaho | 6.00% | 16 | 0.02% | 6.02% | 35 |
| Ill. | 6.25% | 13 | 1.95% | 8.20% | 10 |
| Ind. | 7.00% | 2 | None | 7.00% | 20 |
| Iowa | 6.00% | 16 | 0.81% | 6.81% | 25 |
| Kans. | 6.30% | 12 | 1.96% | 8.26% | 9 |
| Ky. | 6.00% | 16 | None | 6.00% | 36 |
| La. | 4.00% | 38 | 4.85% | 8.85% | 3 |
| Maine | 5.00% | 31 | None | 5.00% | 43 |
| Md. | 6.00% | 16 | None | 6.00% | 36 |
| Mass. | 6.25% | 13 | None | 6.25% | 33 |
| Mich. | 6.00% | 16 | None | 6.00% | 36 |
| Minn. | 6.88% | 7 | 0.30% | 7.18% | 17 |
| Miss. | 7.00% | 2 | 0.00% | 7.00% | 19 |
| Mo. | 4.23% | 37 | 3.26% | 7.49% | 14 |
| Mont. (d) | None | 46 | None | 0.00% | 47 |
| Nebr. | 5.50% | 28 | 1.27% | 6.77% | 26 |
| Nev. | 6.85% | 8 | 1.08% | 7.93% | 13 |
| N.H. | None | 46 | None | 0.00% | 47 |
| N.J. (e) | 7.00% | 2 | -0.03% | 6.97% | 22 |
| N.M. (c) | 5.13% | 30 | 2.12% | 7.24% | 16 |
| N.Y. | 4.00% | 38 | 4.48% | 8.48% | 7 |
| N.C. | 4.75% | 35 | 2.10% | 6.85% | 23 |
| N.D. | 5.00% | 31 | 1.39% | 6.39% | 30 |
| Ohio | 5.50% | 28 | 1.25% | 6.75% | 27 |
| Okla. | 4.50% | 36 | 4.16% | 8.66% | 5 |
| Ore. | None | 46 | None | 0.00% | 47 |
| Pa. | 6.00% | 16 | 0.34% | 6.34% | 32 |
| R.I. | 7.00% | 2 | None | 7.00% | 20 |
| S.C. | 6.00% | 16 | 1.13% | 7.13% | 18 |
| S.D. | 4.00% | 38 | 1.81% | 5.81% | 40 |
| Tenn. | 7.00% | 2 | 2.45% | 9.45% | 1 |
| Tex. | 6.25% | 13 | 1.89% | 8.14% | 11 |
| Utah (b) | 5.95% | 27 | 0.73% | 6.68% | 28 |
| Vt. | 6.00% | 16 | 0.14% | 6.14% | 34 |
| Va. (b) | 5.00% | 31 | None | 5.00% | 43 |
| Wash. | 6.50% | 10 | 2.30% | 8.80% | 4 |
| W.Va. | 6.00% | 16 | None | 6.00% | 36 |
| Wis. | 5.00% | 31 | 0.43% | 5.43% | 41 |
| Wyo. | 4.00% | 38 | 1.34% | 5.34% | 42 |
| D.C. | 6.00% | – | – | 6.00% | – |
Note: Some states levy gross receipts taxA gross receipts tax, also known as a turnover tax, is applied to a company’s gross sales, without deductions for a firm’s business expenses, like costs of goods sold and compensation. Unlike a sales tax, a gross receipts tax is assessed on businesses and apply to business-to-business transactions in addition to final consumer purchases, leading to tax pyramiding. es in addition to sales taxes.
(a) City, county and municipal rates vary. These rates are weighted by population to compute an average local tax rate.
(b) Three states levy mandatory, statewide, local add-on sales taxes at the state level: California (1%), Utah (1.25%), Virginia (1%), that we include in their state sales tax.
(c) The sales taxes in Hawaii, New Mexico and South Dakota have broad bases that include many services
(d) Due to data limitations, table does not include sales taxes in local resort areas in Montana.
(e) Some counties in New Jersey are not subject to statewide sales tax rates and collect a local rate of 3.5%. Their average local score is represented as a negative.
Source: Tax Foundation; US Census Bureau; Sales Tax Clearinghouse
Methodology
Sales Tax Clearinghouse publishes quarterly sales tax data at the state, county and city level by zip code. These numbers are weighted according to Census 2010 population figures in an attempt to give a sense of prevalence of sales tax rates in a particular state.
It is worth noting that population numbers are only published at the zip code level every 10 years by the Census Bureau, so the methodology in this version is slightly different than past versions of this calculation.
It should also be noted that while the Census Bureau reports population data using a five-digit identifier that looks much like a zip code, this is actually what is called a "Zip Code Tabulation Area" (ZCTA), which attempts to create a geographical area associated with a given zip code. This is done because a surprisingly large number of zip codes do not actually have any residents. For example, the National Press Building in Washington, D.C., where the Tax Foundation is located, has its own zip code solely for postal reasons.
For our purposes, zip codes that do not have a corresponding ZCTA population figure are omitted from calculations. These omissions result in some amount of inexactitude, but on the whole should not have a palpable effect on resultant averages, because proximate zip code areas which do have a ZCTA population number assigned to them capture the tax rate of whatever jurisdiction the area is located in.
Erratum: This report initially listed South Dakota's average local rate as 1.34 percent, when it is in fact 1.81 percent (making a combined rate of 5.81 percent). The table above reflects this correction.
[1] Due to data limitations, this study does not include local sales taxes in resort areas in Montana.
[2] To'Nanees'Dizi Local Government Sales Tax Return. TC-FORM 600. http://www.tndtaxcode.com/forms/amended_FORM_600_07-12-11.pdf
[3] Vertex Inc. 2011 Sales Tax Rate Report. http://www.vertexinc.com/PressRoom/PDF/2012/vertex-end-of-year-sales-tax-rate-report-11.pdf. 30 January 2012.
[4] This number includes a mandatory 1 percent add-on tax which is collected by the state but distributed to local governments. Because of this, some sources will describe California's sales tax as 6.25 percent. A similar situation exists in Utah and Virginia.
[5] The sales taxes in Hawaii and South Dakota have bases that include many services, and as such are not strictly comparable to other sales taxes.
[6] U.S. Census Bureau; Census 2010, http://factfinder.census.gov.
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