States with the Highest & Lowest Sales Tax Rates

The Highs and Lows of Sales Tax Rates

Whether you’re selling in just one state or across multiple jurisdictions, you’ve likely encountered the inconsistent nature of U.S. sales tax rates.

Retail sales tax remains a critical source of state and local revenue, contributing nearly one-third of state tax collections and 13% of local tax collections nationwide.

States with the Highest Base Statewide Sales Tax Rates (7%):

• Indiana
• Mississippi
• Rhode Island
• Tennessee

But when local sales tax is added on, the total rate can soar even higher.

States with the Highest Combined Sales Tax Rates (10.4% – 11.5%):

• Arkansas
• Oklahoma
• Louisiana (just raised its rate)
• Arizona
• Colorado
• Alabama
• Illinois
• Kansas
• Washington

States with the Lowest Combined Sales Tax Rates (4.5% – 6.25%):

• Hawaii
• Maine
• Wisconsin
• Kentucky
• Maryland
• Michigan
• Washington, D.C.
• Wyoming
• Massachusetts

Local Sales Taxes Make a Big Difference

According to the Tax Foundation, 38 states allow local governments to impose sales taxes. These local add-ons can significantly impact the total rate a customer pays, and the complexity for businesses trying to stay compliant.

Some of the states where local taxes significantly increase the overall sales tax burden include:

• Colorado
• Louisiana 
• Oklahoma
• Missouri

These local jurisdictions, often governed by “home rule” laws, can set their own rates, rules, and exemptions.

Even No-Sales-Tax States Can Add Up

Five states (often called the NOMAD states) have no statewide sales tax:

• New Hampshire
• Oregon
• Montana
• Alaska
• Delaware

However, that doesn’t mean you're off the hook.

In Alaska, local jurisdictions have joined forces to create the Alaska Remote Seller Sales Tax Commission, and some communities charge as much as 7.5%, putting Alaska on par with the highest-tax states when it comes to certain transactions.

Why Do Sales Tax Rates Vary So Much?

There’s no one reason multiple factors drive state-by-state differences in tax rates:

• Revenue needs: States with lower income or property taxes often lean on sales tax.
• Public services: More robust programs (education, infrastructure, healthcare) may require higher tax funding.
• Tourism or business strategy: States may adjust tax rates to attract consumers or companies.
• Local control: “Home rule” lets cities/counties raise funds for schools, roads, law enforcement, and more.

Even politics can play a role, especially when it comes to exemptions and tax holidays.

Exemptions and Holidays Add Another Layer of Complexity

Not all items are taxed equally. Many states exempt:

• Groceries
• Prescription drugs
• Nonprofit sales
• Government purchases

Recent updates include Kansas eliminating tax on groceries, a trend other states are following.

On top of that, sales tax holidays (often for back-to-school shopping) are becoming more common. In 2024, 19 states including Florida offered tax-free weekends on specific items like clothing, school supplies, and disaster preparedness gear.

And now, retail delivery fees are entering the scene. Colorado and Minnesota have already enacted them, with more states considering similar fees to fund infrastructure and green initiatives.

The Bottom Line: Sales Tax Rates Are Always Changing

Whether you’re navigating high rates in states like Louisiana or Arkansas, or managing low-rate jurisdictions like Hawaii or Delaware, the sales tax landscape is anything but stable. Between state and local shifts, delivery fees, and exemption changes, businesses can’t afford to assume yesterday’s rules still apply.

Need help staying ahead of shifting rates and rules?

Contact TaxConnex to learn how we can become your outsourced sales tax department, so you can stay compliant, reduce risk, and focus on growing your business.