
If you earn any money in the United States, you’ve already paid income taxes on it by the time you’re ready to spend it. Why, then, would you want to pay taxes on that same money again when you spend it on things you need or want? Forty-five states and some municipalities will force you to do just that. Jared Walczak reports at the Cato Institute:
Retail sales taxes are an essential part of most states’ revenue toolkits, responsible for 32 percent of state tax collections and 13 percent of local tax collections (24 percent of combined collections). They also benefit from being more pro-growth than the other major state tax, the individual income tax, because they introduce fewer economic distortions.
Forty-five states collect statewide sales taxes, while consumers also face local sales taxes in 38 states, including Alaska, which does not impose a statewide tax. These local rates can be substantial, and in some cases can rival or even exceed state rates, which means some states with moderate statewide sales tax rates actually impose quite high combined state and local rates compared to other states.
The five states with the highest average combined state and local sales tax rates are Louisiana (10.12 percent), Tennessee (9.56 percent), Arkansas (9.46 percent), Washington (9.43 percent), and Alabama (9.43 percent). The five states with the lowest average combined rates are Alaska (1.82 percent), Hawaii (4.50 percent), Wyoming (5.44 percent), Maine (5.50 percent), and Wisconsin (5.70 percent).
Sales tax rate differentials can induce consumers to shop across borders or buy products online. Sales tax bases also impact how much revenue is collected from a tax and how the tax affects the economy.
Sales taxes are just one part of an overall tax structure and should be considered in context. For example, Tennessee 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.
Action Line: The top-ranked state in Your Survival Guy’s 2024 Super States ranking, New Hampshire, has no statewide sales taxes. Click here to subscribe to my free monthly Survive & Thrive letter and be among the first to receive Your Survival Guy’s 2025 Super States ranking.