Sales taxes in the United States are levied not only by state governments but also by city, county, tribal, and special district governments. In many cases these local sales taxes can have a profound impact on the total rate that consumers experience.
Several private firms maintain databases of the 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. rates in the roughly 10,000 local jurisdictions in the United States that levy them. Here, we list the combined state and local sales 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. rates in major U.S. cities, defined as all U.S. Census-designated incorporated places with a population over 200,000. This report complements our semi-annual calculation of the average of all local sales taxes in each state.[1]
Highest and Lowest Sales Taxes Among Major Cities
On January 1, 2016, Chicago, Illinois, vaulted to the top of the list of cities imposing the highest combined state and local sales tax in the nation when a county tax increase brought the total rate to 10.25 percent.[2] Four cities trail closely behind at 10 percent: Birmingham and Montgomery, Alabama; and Baton Rouge and New Orleans, Louisiana.
The two cities in Louisiana are new inclusions at the very top, driven by a one percentage point increase in the Louisiana state sales tax effective April 1, 2016.[3] They are followed by Seattle and Tacoma, Washington, at 9.6 percent; Freemont and Oakland, California, at 9.5 percent; Memphis and Nashville, Tennessee, at 9.25 percent; and Glendale, Arizona, at 9.2 percent.
Portland, Oregon, and Anchorage, Alaska, have neither a state nor local sales tax. Honolulu, Hawaii, has the third lowest sales tax among major cities with a rate of 4.5 percent. However, Hawaii’s overly broad sales tax makes this not strictly comparable with other states. Richmond, Virginia (5.3 percent), Madison, Wisconsin (5.5 percent), and Tulsa, Oklahoma (5.5 percent), also impose low combined state and local sales tax rates.
The Role of Competition in Sales Tax
Sales tax avoidance is most likely to occur in areas where there is a significant difference between two jurisdictions’ sales tax rates. Research indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas, such as from cities to suburbs.[4] For example, strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago’s high sales tax rates.[5] At the statewide level, businesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates. The state of Delaware actually uses its state border welcome sign to remind motorists that Delaware is the “Home of Tax-Free Shopping.”[6] State and local governments should be cautious about raising rates too high relative to their neighbors because doing so may lead to revenue losses despite the higher tax rate.
Sales Tax Bases: The Other Half of the Equation
This report ranks states and cities based on tax rates and does not account for differences in tax bases (the structure of sales taxes, defining what is taxable and non-taxable). States can vary greatly in this regard. For instance, most states exempt groceries from the sales tax, others tax groceries at a limited rate, and still others tax groceries at the same rate as all other products.[7] Some states exempt clothing or tax it at a reduced rate.[8] The taxation of services and business-to-business transactions also varies widely by state.[9]
Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain.[10] These recommendations would result in a tax system that is not only broad-based but also “right-sized,” applying once and only once to each product the market produces. Despite agreement in theory, the application of most state sales taxes is far from this ideal.[11]
Hawaii has the broadest sales tax in the United States, taxing many products multiple times and, by one estimate, ultimately taxing more than 100 percent of the state’s personal income. This base is far wider than the national median, where the sales tax baseThe 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. applies to 36.3 percent of personal income.[12]
Conclusion
Sales taxes are just one part of the overall tax structure and should be considered in context. For example, Washington State has high sales taxes but no income tax, whereas Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers’ control that can have immediate impacts.
Table 1: State and Local Sales Tax Rates in Cities with Populations above 200,000, as of July 1, 2016 |
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| City | State | State | Local | Total | Rank |
| Chicago | Illinois | 6.25% | 4.00% | 10.25% | 1 |
| Baton Rouge | Louisiana | 5.00% | 5.00% | 10.00% | 2 |
| Birmingham (a) | Alabama | 4.00% | 6.00% | 10.00% | 2 |
| Montgomery | Alabama | 4.00% | 6.00% | 10.00% | 2 |
| New Orleans (b) | Louisiana | 5.00% | 5.00% | 10.00% | 2 |
| Seattle | Washington | 6.50% | 3.10% | 9.60% | 6 |
| Tacoma | Washington | 6.50% | 3.10% | 9.60% | 6 |
| Fremont (c) | California | 7.50% | 2.00% | 9.50% | 8 |
| Oakland (c) | California | 7.50% | 2.00% | 9.50% | 8 |
| Memphis | Tennessee | 7.00% | 2.25% | 9.25% | 10 |
| Nashville | Tennessee | 7.00% | 2.25% | 9.25% | 10 |
| Glendale | Arizona | 5.60% | 3.60% | 9.20% | 12 |
| Glendale (c) | California | 7.50% | 1.50% | 9.00% | 13 |
| Long Beach (c) | California | 7.50% | 1.50% | 9.00% | 13 |
| Los Angeles (c) | California | 7.50% | 1.50% | 9.00% | 13 |
| Stockton (c) | California | 7.50% | 1.50% | 9.00% | 13 |
| New York | New York | 4.00% | 4.875% | 8.875% | 17 |
| Yonkers | New York | 4.00% | 4.875% | 8.875% | 17 |
| Buffalo | New York | 4.00% | 4.75% | 8.75% | 19 |
| San Francisco (c) | California | 7.50% | 1.25% | 8.75% | 19 |
| San Jose (c) | California | 7.50% | 1.25% | 8.75% | 19 |
| Spokane | Washington | 6.50% | 2.20% | 8.70% | 22 |
| St. Louis | Missouri | 4.225% | 4.45% | 8.679% | 23 |
| Phoenix | Arizona | 5.60% | 3.00% | 8.60% | 24 |
| Tulsa | Oklahoma | 4.50% | 4.017% | 8.517% | 25 |
| Aurora (d) | Colorado | 2.90% | 5.60% | 8.50% | 26 |
| Sacramento (c) | California | 7.50% | 1.00% | 8.50% | 26 |
| Kansas City (e) | Missouri | 4.225% | 4.25% | 8.475% | 28 |
| Oklahoma City | Oklahoma | 4.50% | 3.88% | 8.38% | 29 |
| Aurora | Illinois | 6.25% | 2.00% | 8.25% | 30 |
| Austin (f) | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Colorado Springs | Colorado | 2.90% | 5.35% | 8.25% | 30 |
| Corpus Christi | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Dallas | Texas | 6.25% | 2.00% | 8.25% | 30 |
| El Paso | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Fort Worth | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Garland | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Houston | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Irving | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Laredo | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Lubbock | Texas | 6.25% | 2.00% | 8.25% | 30 |
| Plano | Texas | 6.25% | 2.00% | 8.25% | 30 |
| San Antonio | Texas | 6.25% | 2.00% | 8.25% | 30 |
| San Bernardino (c) | California | 7.50% | 0.75% | 8.25% | 30 |
| Fresno (c) | California | 7.50% | 0.725% | 8.225% | 45 |
| Henderson | Nevada | 6.85% | 1.30% | 8.15% | 46 |
| Las Vegas | Nevada | 6.85% | 1.30% | 8.15% | 46 |
| North Las Vegas | Nevada | 6.85% | 1.30% | 8.15% | 46 |
| Tucson | Arizona | 5.60% | 2.50% | 8.10% | 49 |
| Mesa | Arizona | 5.60% | 2.45% | 8.05% | 50 |
| Anaheim (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Arlington | Texas | 6.25% | 1.75% | 8.00% | 51 |
| Atlanta (g) | Georgia | 4.00% | 4.00% | 8.00% | 51 |
| Chula Vista (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Cleveland | Ohio | 5.75% | 2.25% | 8.00% | 51 |
| Columbus | Georgia | 4.00% | 4.00% | 8.00% | 51 |
| Fontana (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Huntington Bch (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Irvine (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Moreno Valley (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Philadelphia | Pennsylvania | 6.00% | 2.00% | 8.00% | 51 |
| Riverside (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Rochester | New York | 4.00% | 4.00% | 8.00% | 51 |
| San Diego (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Santa Ana (c) | California | 7.50% | 0.50% | 8.00% | 51 |
| Scottsdale | Arizona | 5.60% | 2.35% | 7.95% | 66 |
| Chandler | Arizona | 5.60% | 2.20% | 7.80% | 67 |
| Gilbert | Arizona | 5.60% | 2.20% | 7.80% | 67 |
| Minneapolis (h) | Minnesota | 6.875% | 0.90% | 7.775% | 69 |
| Saint Paul (i) | Minnesota | 6.875% | 0.90% | 7.775% | 69 |
| Reno | Nevada | 6.85% | 0.88% | 7.73% | 71 |
| Denver | Colorado | 2.90% | 4.75% | 7.65% | 72 |
| Modesto (c) | California | 7.50% | 0.13% | 7.63% | 73 |
| Columbus | Ohio | 5.75% | 1.75% | 7.50% | 74 |
| Bakersfield (c) | California | 7.50% | 0.00% | 7.50% | 75 |
| Durham | North Carolina | 4.75% | 2.75% | 7.50% | 75 |
| Oxnard (c) | California | 7.50% | 0.00% | 7.50% | 75 |
| Wichita | Kansas | 6.50% | 1.00% | 7.50% | 75 |
| Albuquerque (j) | New Mexico | 5.125% | 2.1875% | 7.3125% | 79 |
| Charlotte | North Carolina | 4.75% | 2.50% | 7.25% | 80 |
| Lincoln | Nebraska | 5.50% | 1.75% | 7.25% | 80 |
| Toledo | Ohio | 5.75% | 1.50% | 7.25% | 80 |
| Cincinnati (k) | Ohio | 5.75% | 1.25% | 7.00% | 83 |
| Fayetteville | North Carolina | 4.75% | 2.25% | 7.00% | 83 |
| Fort Wayne | Indiana | 7.00% | 0.00% | 7.00% | 83 |
| Indianapolis | Indiana | 7.00% | 0.00% | 7.00% | 83 |
| Jersey City | New Jersey | 7.00% | 0.00% | 7.00% | 83 |
| Newark | New Jersey | 7.00% | 0.00% | 7.00% | 83 |
| Omaha (l) | Nebraska | 5.50% | 1.50% | 7.00% | 83 |
| Hialeah | Florida | 6.00% | 1.00% | 7.00% | 90 |
| Jacksonville | Florida | 6.00% | 1.00% | 7.00% | 90 |
| Miami | Florida | 6.00% | 1.00% | 7.00% | 90 |
| Pittsburgh | Pennsylvania | 6.00% | 1.00% | 7.00% | 90 |
| St. Petersburg | Florida | 6.00% | 1.00% | 7.00% | 90 |
| Tampa | Florida | 6.00% | 1.00% | 7.00% | 90 |
| Greensboro | North Carolina | 4.75% | 2.00% | 6.75% | 96 |
| Raleigh | North Carolina | 4.75% | 2.00% | 6.75% | 96 |
| Winston–Salem | North Carolina | 4.75% | 2.00% | 6.75% | 96 |
| Orlando | Florida | 6.00% | 0.50% | 6.50% | 99 |
| Boston | Massachusetts | 6.25% | 0.00% | 6.25% | 100 |
| Arlington (c, m) | Virginia | 5.30% | 0.70% | 6.00% | 101 |
| Baltimore | Maryland | 6.00% | 0.00% | 6.00% | 101 |
| Boise | Idaho | 6.00% | 0.00% | 6.00% | 101 |
| Chesapeake (c) | Virginia | 5.30% | 0.70% | 6.00% | 101 |
| Des Moines | Iowa | 6.00% | 0.00% | 6.00% | 101 |
| Detroit | Michigan | 6.00% | 0.00% | 6.00% | 101 |
| Lexington | Kentucky | 6.00% | 0.00% | 6.00% | 101 |
| Louisville | Kentucky | 6.00% | 0.00% | 6.00% | 101 |
| Norfolk (c) | Virginia | 5.30% | 0.70% | 6.00% | 101 |
| Virginia Beach (c) | Virginia | 5.30% | 0.70% | 6.00% | 101 |
| Washington | District of Columbia | 5.75% | 0.00% | 5.75% | 111 |
| Milwaukee | Wisconsin | 5.00% | 0.60% | 5.60% | 112 |
| Madison | Wisconsin | 5.00% | 0.50% | 5.50% | 113 |
| Richmond (c) | Virginia | 5.30% | 0.00% | 5.30% | 114 |
| Honolulu (j, n) | Hawaii | 4.00% | 0.50% | 4.50% | 115 |
| Anchorage | Alaska | 0.00% | 0.00% | 0.00% | 116 |
| Portland | Oregon | 0.00% | 0.00% | 0.00% | 116 |
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(a) Most of Birmingham is located within Jefferson County and is subject to a 10 percent sales tax. However, part of the city lies in Shelby County and is subject to a total rate of 9 percent. (b) Most of New Orleans is located within Orleans Parish and is subject to a 10 percent sales tax. However, part of the city lies in Jefferson Parish and is subject to a total rate of 9.75 percent. (c) California (1.25%) and Virginia (1%) levy mandatory, statewide add-on sales taxes at the local level; these are included in their state sales tax rates. Northern Virginia and Hampton Roads have an additional 0.7 percent rate, which is treated here as a local tax. (d) Most of Aurora is located within Adams County and is subject to an 8.5 percent sales tax. However, part of the city lies in Arapahoe County and is subject to a total rate of 8.0 percent. (e) Most of Kansas City is located within Jackson County and is subject to a 8.35 percent sales tax. However, the city’s top rate is in Platte County, at 8.475 percent, while another part of the city lies in Clay County, where it is subject to a total rate of 8.1 percent. (f) Most of Austin is located within Travis and Williamson counties and is subject to an 8.25 percent sales tax. However, part of the city lies in Hays County and is subject to a total rate of 7.25 percent. (g) Most of Atlanta is located in Fulton County and is subject to an 8 percent sales tax. However, part of the city lies in Cobb County and is subject to a total rate of 7 percent. (h) Most of Minneapolis is within Hennepin County and is subject to a 7.775 percent sales tax. However, part of the city lies in Anoka County and is subject to a total rate of 7.625 percent. (i) Most of St. Paul is located within Ramsey, Washington, and Dakota Counties and is subject to a 7.625 percent sales tax. However, part of the city lies in Hennepin County and is subject to a total rate of 7.775 percent. (j) The sales taxes in Hawaii and New Mexico have broad bases that include many services. (k) Most of Cincinnati is located within Hamilton County and is subject to a 7.0 percent sales tax. However, part of the city lies in Claremont County and is subject to a total rate of 6.75 percent. (l) Most of Omaha is located within Douglas County and is subject to a 7 percent sale tax. However, part of the city lies in Sarpy County and is subject to a total rate of 5.5 percent. (m) Arlington is a county without any incorporated municipalities. However, we treat it as a city here because it is included in the Census Bureau’s annual list of incorporated places. |
[1] Jared Walczak and Scott Drenkard, “State and Local Sales Tax Rates, Midyear 2016,” Tax Foundation Fiscal Fact No. 515, July 5, 2016, https://taxfoundation.org/article/state-and-local-sales-tax-rates-midyear-2016.
[2] Jared Walczak, “Chicago Adopts Highest Sales Tax Among Major Cities,” Tax Foundation Tax Policy Blog, July 16, 2015, https://taxfoundation.org/blog/chicago-adopts-highest-sales-tax-among-major-cities.
[3] Tyler Bridges, “Louisiana Sales Tax System Now Ranks Worse Than Last Place,” The Advocate, Mar. 31, 2016, http://theadvocate.com/news/15350511-127/louisiana-sales-tax-system-now-ranks-worse-than-last-place.
[4] Mehmet Serkan Tosun and Mark Skidmore, “Cross-Border Shopping and the Sales Tax: A Reexamination of Food Purchases in West Virginia” (Working Paper, 2005), http://www.rri.wvu.edu/pdffiles/Tosunwp2005-7.pdf. See also Randolph T. Beard, Paula A. Gant, and Richard P. Saba, “Border-Crossing Sales, Tax Avoidance, and State Tax Policies: An Application to Alcohol,” Southern Economic Journal, 64(1), 293-306 (1997).
[5] Susan Chandler, “The Sales Tax Sidestep,” Chicago Tribune, July 20, 2008, http://articles.chicagotribune.com/2008-07-20/business/0807190001_1_sales-tax-tax-avoidance-tax-landscape.
[6] “Raise taxes, and they’ll move, constituents tell one delegate,” Marylandreporter.com, Aug. 3, 2011, http://marylandreporter.com/2011/08/03/raise-taxes-and-theyll-move-constituents-tell-one-delegate/.
[7] For a list, see Jared Walczak, Scott Drenkard, and Joseph Henchman, 2016 State Business Tax Climate Index, Tax Foundation, Nov. 17, 2015, https://taxfoundation.org/article/2016-state-business-tax-climate-index/.
[8] Liz Malm and Richard Borean, “How Does Your State Sales Tax See That Blue and Black (or White and Gold) Dress?” Tax Foundation, Feb. 27, 2015, https://taxfoundation.org/blog/how-does-your-state-sales-tax-see-blue-and-black-or-white-and-gold-dress.
[9] For a representative list, see Jared Walczak, Scott Drenkard, and Joseph Henchman, 2016 State Business Tax Climate Index.
[10] Justin Ross, “A Primer on State and Local Tax Policy: Trade-Offs Among Tax Instruments,” Mercatus Center at George Mason University, Feb. 25, 2014, http://mercatus.org/publication/primer-state-and-local-tax-policy-trade-offs-among-tax-instruments.
[11] For a representative list, see Jared Walczak, Scott Drenkard, and Joseph Henchman, 2016 State Business Tax Climate Index.
[12] John Mikesell, “State Retail Taxes in 2012: The Recovery Continues,” State Tax Notes, 1001-1006 (June 2013).