States with the highest & lowest sales tax rates

Sales tax is confusing enough with the thousands of multi-level jurisdictions in the U.S. and constantly changing tax laws. Maybe one day the country will have one sales tax rate across all states – but that sure isn’t today.

And some states’ sales tax rates are a lot higher than others’.

Highs and lows

You don’t sell in multiple states, or even within various localities in a single state, long without encountering the dizzying inconsistency of sales tax rates. Retail sales taxes are an essential part of most states’ revenue, responsible for almost a third of state tax collections and 13% of local tax collections.

States with the highest base statewide sales tax (7%) are Indiana, Mississippi, Rhode Island and Tennessee. Given combined statewide and local sales tax rates, though:

Highest (11.5% - 10.4%): Arkansas, Oklahoma, Louisiana, Arizona, Colorado, Alabama, Illinois, Kansas, Washington. (Louisiana just raised its sales tax more.)

Lowest (4.5% - 6.25%): Hawaii, Maine, Wisconsin, Kentucky, Maryland, Michigan, Washington, D.C., Wyoming, Massachusetts.

According to the Tax Foundation, local sales taxes are collected in 38 states.

States where municipalities and localities can contribute most to the overall sales tax burden (in some cases more than doubling it) include Colorado, Louisiana, Oklahoma and Missouri.

Even among the five “NOMAD” states that have no statewide sales tax, the bite is increasing. In Alaska, where communities have banded together to form the Alaska Remote Seller Sales Tax Commission, sales tax can hit 7.5%, nearing the combined rates of such infamously heavy-tax states as New York.

Many considerations

One reason state sales taxes vary so widely is that the state-by-state factors influencing tax rates also differ.

Each state has varying revenue requirements depending on population, social programs and other services. States with lower income or property taxes may rely more heavily on sales taxes to balance their budgets. States use also sales tax policies to attract residents, businesses and tourists.

Some states also allow cities and counties to impose their own sales taxes, leading to a patchwork of rates within the same state. Aka “home rule,” this approach allows local governments to address specific financial needs or community projects, such as funding schools, law enforcement or local infrastructure.

Some factors don’t influence sales tax much but can still throw off calculations such as exemptions and sales tax holidays, both sometimes motivated by whirlwind politics.

• Many states exempt essential items like groceries or prescription medications or items sold to schools, governments or other nonprofits (groceries have recently been made exempt in Kansas, among many other states).
• States offer sales tax holidays on certain items, such as back-to-school supplies or disaster-preparedness gear; nineteen states (notably Florida) had sales tax holidays slated for last year.
• A more recent sales “tax” development are retail delivery fees in Colorado and Minnesota – other states are considering them – that tack a small “fee” onto delivery of each package. The revenue goes to infrastructure and green improvement.

Obviously, you can’t depend on either highs or lows to stay steady in sales tax.

Contact TaxConnex if you think your business may be impacted by sales tax changes. TaxConnex provides services to become your outsourced sales tax department. Get in touch to learn more.