according to a new study by the nonpartisan Tax Foundation. Additionally, the report indicates that Alaska, Hawaii, Maine, Wisconsin, and Wyoming have the lowest combined rates, and details the changes Virginia, Arkansas, Arizona, Kansas, and the District of Columbia have made to their sales taxes in 2013.
“Sales taxes are one of the most easily understood taxes because every time a consumer makes a purchase, they can see the rate on the receipt” says Tax Foundation economist Scott Drenkard. “Our comprehensive analysis addresses the fact that 38 states allow local governments to levy sales taxes within their jurisdiction. These local rates, when combined with the statewide rates, can result in substantially larger tax bites.”
Five states do not have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska and Montana allow localities to charge local sales taxes.
The five states with the highest average combined rates are Tennessee (9.44 percent), Arkansas (9.18 percent), Louisiana (8.89 percent), Washington (8.87 percent), and Oklahoma (8.72 percent). The five states with the lowest average combined rates are Alaska (1.69 percent), Hawaii (4.35 percent), Maine (5 percent), and Wisconsin (5.43 percent), Wyoming (5.50 percent).
The new report also details the significant changes that have taken place in states’ treatments of sales taxes in 2013. As a result of new transportation legislation, Virginia’s statewide sales tax rate increased on July 1, 2013 from 5 percent to 5.3 percent; localities in Northern Virginia and Hampton Roads charge a 6 percent combined rate. Also effective July 1, 2013, Arkansas raised its state sales tax rate from 6 percent to 6.5 percent.
Not all states are increasing their rates, however. Arizona cut its rate from 6.5 percent to 5.5 percent as a temporary sales tax increase expired, and Kansas moderately cut its statewide sales tax rate from 6.3 percent to 6.15 percent. The District of Columbia is scheduled to lower its sales tax from 6 percent to 5.75 percent on October 1, 2013.
“Of course, sales taxes are just one part of an overall tax structure and should be considered in context,” adds Drenkard. “For example, Washington State has high sales taxes but no income tax; 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.”
Tax Foundation Fiscal Fact No. 392, “State and Local Sales Tax Rates Midyear 2013,” by Scott Drenkard is available online.
The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state, and local levels since 1937.