Sales tax is tax that is paid to a governing body, for the sales of certain goods and services. It is collected by a retailer when the final sale in the supply chain happens, with only the end consumers paying the tax most of the time (businesses get resale certificates for any in-between stages).
Sales tax makes everything anyone buys a little more expensive, and it’s not just state sales taxes you need to keep in mind when looking at which states have the most or least. Some counties and cities also charge sales tax, which needs to be added on to find the overall amount. Some states have cut out sales tax entirely.
Lowest sales tax states
There are 5 states that do not have any statewide sales taxes, being:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
While these states don’t charge any state sales tax, Alaska does allow localities to charge local sales taxes, but the average state rate is still relatively low – at 1.76%.
Rounding up the top 11 states with the lowest tax rates, all under 5%, are:
- Colorado
- Wyoming
- Alabama
- Georgia
- Hawaii
- New York
Colorado has a 2.9% state tax, while all the rest are joint at 4% state sales tax.
States with the highest sales tax
In some cases, these rates get so high that shoppers will go out of their way and drive across state lines in order to shop somewhere with lower sales tax rates:
- California: 7.25%
- Indiana: 7%
- Mississippi: 7%
- Rhode Island: 7%
- Tennessee: 7%
- Minnesota: 6.875%
- Nevada: 6.85%
What items get taxed?
Most states exempt essential household items, such as food, clothing and prescription items, from being taxed, to be fair to all citizens. But, many states have taxes for certain purchases such as tobacco, alcohol, beverages and gasoline. Taxes on tobacco and alcohol, as well as gambling, are often referred to as sin taxes. New Hampshire charges a hefty amount on tobacco products – a pack of 20 cigarettes equates to an extra $1.78, and a pack of 25 cigarettes is an extra $2.23. Wyoming is great for sin taxes, though – with the lowest beer tax in the whole of the U.S., at half a cent per litre.
Local state sales taxes
Thirty eight states allow local counties and cities to impose their own additional sales taxes. While California does have the overall highest states sales tax rate, the combined state and local sales tax rates for Tennessee reaches 9.53% in some areas: the highest combined rate in the country, which is why it’s so important to look at sales tax rates overall, and not just state sales tax, although those do give you a good idea of which states have lower and higher sales taxes. Not far behind are the following, as of 2020:
- Arkansas: 9.47%
- Louisiana: 9.52%
- Alabama: 9.22%
- Washington: 9.21%
- New York 8.875%
Don’t base decisions solely on sales taxes
Many people only look at certain taxes when considering where they would like to relocate to, or live in retirement. If you’re looking at state and local sales taxes, while it is true that they can take a bit out of your income, often the states with lower sales tax rates have other ways of taking money from individuals. States with lower sales tax can have very high income tax rates, and this is the case with Oregon. On the other hand, Tennessee has the highest state sales tax but no wage income tax, so it depends on you personally.
TRUiC has a useful sales tax calculator to help you work out taxes. Visit this site for more.
