Which State Has The Highest Taxes – Retail sales tax is one of the more obvious ways to collect tax revenue. Although graduated income tax rates and brackets are complex and confusing to many taxpayers, sales tax is easy to understand; Customers can see their tax burden printed directly on their receipts.
In addition to state sales taxes, consumers face local sales taxes in 38 states. These rates can be large, so a state with an average statewide sales tax rate may have much higher state and local rates than other states. This report provides a population-based average of local sales tax rates as of July 1, 2022, to give an idea of the average local rate in each state. Table 1 provides a complete state-by-state listing of state and local sales tax rates.
Which State Has The Highest Taxes
Five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Meanwhile, Alaska allows localities to charge local sales tax.
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Louisiana (9.55 percent), Tennessee (9.547 percent), Arkansas (9.48 percent), Washington (9.29 percent) and Alabama (9.22 percent) have the highest average combined state and local sales tax rates. The five states with the lowest average combined rates are Alaska (1.76 percent), Hawaii (4.44 percent), Wyoming (5.36 percent), Wisconsin (5.43 percent), and Maine (5.50 percent).
California has the highest state sales tax rate of 7.25 percent. Four states tied for the second-highest statewide rate, at 7 percent: Indiana, Mississippi, Rhode Island, and Tennessee. Colorado has the lowest non-zero state-level sales tax, at 2.9 percent. Five states followed at 4 percent: Alabama, Georgia, Hawaii, New York and Wyoming.
New Mexico dropped its statewide sales tax rate—a hybrid tax called the state gross receipts tax—from 15th to the 16th highest combined rate, surpassing Colorado.  The rate has been reduced from 5.125 percent to 5.00 percent, and will be reduced again to 4.875 scheduled on July 1, 2023. If the revenue from gross receipts tax is less than 95 percent in any financial year from 2026 to 2029. The rate will change to 5.125 percent next July 1, over the previous year’s earnings.
New Mexico’s rate reduction is the first decrease in the state’s sales tax rate in five years, as Louisiana’s state rate was lowered from 5.0 to 4.45 percent on July 1, 2018.  State lawmakers have instead prioritized income tax cuts, which provide several. Economic Benefits In the past two years alone, two dozen states have reduced their individual or corporate income tax rates (or both).
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The five states with the highest average local sales tax rates are Alabama (5.24 percent), Louisiana (5.10 percent), Colorado (4.87 percent), New York (4.52 percent), and Oklahoma (4.49 percent).
In an unusually quiet year on the sales tax front, no state has changed its ranking due to local rate changes since January. The West Virginia cities of Alderson and Ansted adopted a 1 percent local option sales tax effective July 1, but it wasn’t enough to change the state’s ranking. Strong receipts and adequate federal pandemic relief funding may ease local pressure to generate more tax revenue.
It should be noted that some New Jersey cities are in “Urban Enterprise Zones” where qualified retailers can collect and pay half (3.3125 percent) of the 6.625 percent statewide sales tax rate, which is intended to help local retailers compete in neighboring Delaware. designed for , which excludes sales tax. We present this difference as a negative 0.03 percent of the statewide average local rate (adjusted for population as described in the Methodology section below), and the composite rate reflects this minus. Despite the small positive effect on the overall rate, this lower rate represents a clear nod to New Jersey officials, whose 6.625 percent statewide rate competes with neighboring Delaware, which has no sales tax.
(a) Fees vary by city, province and municipality. These rates are calculated by population to calculate the average local tax rate.
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(b) Three states impose a mandatory, statewide local add-on sales tax at the state level: California (1%), Utah (1.25%), and Virginia (1%). We include it in their state sales tax.
(c) Hawaii, New Mexico and South Dakota have a broad sales tax base that includes many business-to-business services.
(e) Salem County, N.J., is not subject to the statewide sales tax rate and collects a local rate of 3.3125%. Local marks in New Jersey are represented as negative.
Sales tax evasion is likely to occur in areas where prices vary significantly between jurisdictions. Research shows that consumers may leave high-tax areas, such as cities, for the suburbs to make more purchases in low-tax areas. For example, evidence shows that Chicago-area consumers make large purchases in nearby suburbs or online to avoid Chicago’s 10.25 percent sales tax.
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At the state level, businesses sometimes look beyond the boundaries of high sales tax zones to keep their prices down. A good example of this can be found in New England, where although I-91 runs on the Vermont side of the Connecticut River, many other retail establishments choose to locate on the New Hampshire side to avoid sales tax. One study shows that per capita sales in New Hampshire’s border counties have tripled since the late 1950s, while per capita sales in Vermont’s border counties have stagnated. At one point, Delaware actually used highway welcome signs to remind motorists that Delaware was the “home of tax-free shopping”.
State and local governments must be wary of raising rates higher than their neighbors, as doing so can result in lower-than-expected revenue or, in extreme cases, lost revenue despite higher tax rates.
This report ranks states based on tax rates and does not take into account differences in tax bases (
The sales tax structure determines what is taxable and what is not). States can vary greatly in this regard. For example, most states exempt groceries from sales tax, some tax groceries at a limited amount, and others tax groceries at the same rate as all other items. Some states exempt clothing or tax it at a lower rate.
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Tax experts generally recommend that sales tax applies to all final retail sales of goods and services but not to intermediate business-to-business transactions in the production chain. These recommendations result in a tax system that is not only broad-based but also “highly scaled”, applying only once to each product produced in the market. Despite the theoretical agreement, most state sales tax implementation falls far short of this ideal.
Hawaii has the broadest sales tax in the United States, but it taxes many products many times over, ultimately taxing 119 percent of personal income in the state, according to one estimate. That base is broader than the national average, where sales tax applies to 36 percent of personal income.
The Sales Tax Clearinghouse publishes quarterly sales tax data by state, county, and city by ZIP code. We calculated these numbers based on the 2010 Census to give an idea of the spread of sales tax rates in a particular state.
Every 10 years the US The Census Bureau only releases population figures at the zip code level, and versions of these counts released before July 1, 2011 do not use zip code data and are therefore not strictly comparable. Zip code level data is not yet available for the 2020 Census, so the current version of the 2010 Census numbers continues to be used.
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It’s also important to note that while the Census Bureau reports population data using a five-digit identifier that looks like a postal code, it’s actually called a ZIP Code Tabulation Area (ZCTA), which attempts to create a geographic area. with the provided zip code. This is because a surprising number of zip codes actually have no residents. For example, the National Press Building in Washington DC. It has its own postal code only for postal reasons.
For our purposes, zip codes without corresponding ZCTA population statistics are excluded from the calculation. This omission introduces some degree of inaccuracy, but has no discernible effect on the overall mean. The result is a tax for the approximate ZIP code area in which the ZCTA resides. In that jurisdiction.
Sales tax is only one part of the overall tax structure and must be considered in context. For example, Tennessee has a high sales tax but no income tax, while Oregon has no sales tax but a high income tax. While many factors influence business location and investment decisions, the sales tax is one that policymakers control with the most immediate impact.
 This figure includes mandatory add-on taxes collected by states but distributed to local governments. Because of this, some sources say the sales tax in California is 6.0 percent. Utah and Virginia have a similar situation.
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 Hawaii and South Dakota have a sales tax base that includes many services and is therefore not comparable to other sales taxes.
 Jared Walczak and Scott Drengard,
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