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These 7 States Tax Shoppers the Hardest

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States get their tax revenue from a variety of different sources. Unlike the federal government, which relies almost solely on income taxes, most states add on property taxes and sales taxes to help finance statewide and local government expenses. The immense popularity of online marketplaces Amazon.com (NASDAQ: AMZN  ) and eBay (NASDAQ: EBAY  ) show the length to which consumers will go to avoid having to pay sales taxes, as those companies have traditionally been able to avoid having to collect sales tax in most of the jurisdictions they serve. Moreover, the competitive advantage that they've gained has helped send brick-and-mortar retailers Best Buy (NYSE: BBY  ) and Sears Holdings (NASDAQ: SHLD  ) into serious difficulty, and countless small businesses suffer from the disadvantage of having to charge their customers sales taxes that those customers could avoid by going to Amazon, eBay, or other untaxed online retail sources.

Of course, just how big the sales-tax burden is varies greatly not just from state to state but also within states, as local-option sales taxes allow cities and counties to add on their own extra charge on shoppers. Using a combination of figures from the Tax Foundation, including general state sales taxes and average local-option surtaxes, let's look at the seven states that top the list in imposing the highest sales-tax rates.

7. New York
New York has a relatively low statewide sales tax of 4%, but local taxes more than double that total, bringing the combined average rate up to 8.48%. On a per-person basis, state and local governments collect an average of $1,783 in sales and excise taxes, the sixth highest in the nation, and combined with high rates on income and property taxes, New York ranks as the most burdensome for state and local taxes in the nation.

6. Arkansas
Arkansas carries a 6% general sales tax rate, with local options adding another 2.61% on average for a combined rate of 8.61%. Yet because spending is lower, total per-person sales and excise tax collections are $1,649, ranking it eighth. But on property taxes, Arkansas ranks among the two cheapest places to live from a tax standpoint, offsetting some of the sales-tax burden.

5. Oklahoma
Oklahoma's 4.5% statewide sales tax is looks attractive until you tack on 4.17% in local add-on taxes. Nevertheless, spending is extremely low, putting overall per-person sales-tax collections in the lower half of states nationally. With average property taxes in the bottom five in the nation and relatively low income-tax rates as well, Oklahoma's overall tax burden isn't very high despite its high sales-tax rates.

4. Washington
With 6.5% statewide taxes and 2.36% in add-ons at the local level, Washington's overall 8.86% average sales-tax rate helps give the state the highest average collections of sales and excise taxes, at $2,416 per person. Yet the high sales taxes are more understandable when you consider that Washington doesn't have an income tax at all and boasts relatively little per-person revenue from property taxes as well.

3. Louisiana
Louisiana's 4% general sales tax more than doubles when you add in 4.87% for locally imposed sales taxes. Those figures combine with excise tax to produce a total burden of $1,928, fourth highest in the nation. Again, though, modest property-tax revenue and income tax rates make the sales tax more palatable, especially given that visitors bear a substantial amount of its effects.

2. Arizona
Arizona's overall combined tax rate tops the 9% mark, with 6.6% rates statewide added to 2.56% in average local taxes. Yet the state only ranks 20th in per-person sales and excise taxes at $1,365, suggesting that spending levels are relatively restrained compared to other states. Overall, Arizona's ranks in the bottom quarter for total tax burden, with sales taxes being the biggest contributor to revenue.

1. Tennessee
Topping the sales-tax list is Tennessee, with a 7% statewide rate combined with a 2.44% local sales tax. But with an income tax that only applies to interest and dividends and with very low property-tax revenue, sales taxes are just about the only source of potential revenue left for state and local governments to go after.

Hitting visitors as well as residents
One thing to remember about sales taxes is that if structured well, they can transfer a substantial amount of tax liability away from residents and onto visiting tourists. The high rates that prevail in tourist locations like Louisiana and Arizona show just how attractive sales taxes can be. Yet opponents note their regressive impact on low-income residents. In the end, sales taxes are just one of many financial aspects associated with where you choose to live, and taking into your account your own spending patterns is essential to determine the impact sales taxes have on your personal finances.

Sales tax is just part of what has made Amazon the king of the retail world right now, but as lawmakers consider allowing states to tax Internet sales, is its lofty stock price doomed to fall? The Motley Fool's premium report will tell you what's driving the company's growth and fill you in on reasons to buy and reasons to sell Amazon. The report also has you covered with a full year of free analyst updates to keep you informed as the company's story changes, so click here now to read more.


Read/Post Comments (28) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 04, 2013, at 9:47 AM, SRNoyes wrote:

    It's been sad watching sales tax climb and climb in AZ over the last 20 years. When I moved to AZ 20 years ago I was amazed at the almost non-existent sales tax of 1-2%. 0.125% added hear for 5 years that never goes away. Over there a 7 year 1/16% added that never goes away. On yonder a 0.25% added and so it has gone. :-(

  • Report this Comment On May 04, 2013, at 10:48 AM, VRSEFgold wrote:

    Best Buy is on its way out because of their policies and prices! Walmart and Amazon are squeezing out e-Bay because of lower fees and shipping. Walmart has ZERO shipping if picked up at the store. I shop on-line first at Walmart, then Amezon and Lowes. For parts, I shop Partstore. Finally, JCP, Best Buy, Home Depot, and e-Bay are off-limits for my household.

  • Report this Comment On May 04, 2013, at 10:55 AM, M0Self wrote:

    I think you missed Alabama. he state rate is 4% but counties can double that and then cities also add. There are places in AL where the sales tax rate is 10% and higher. Montgomery, the capital, is 10% and some Birmingham suburbs are 12-14% depending on city.

  • Report this Comment On May 04, 2013, at 11:28 AM, mfddoc123 wrote:

    California's Alameda County tops 9.25%, why are they not mentioned?

    Or does Motley Fool not say anything derogatory about Cali?

  • Report this Comment On May 04, 2013, at 11:40 AM, bwdan2003 wrote:

    New Jersey has a 7% sales tax with the exception of clothing and foodstuffs when purchased at a grocery store. There are select spots where the sales tax drops to 3% depending on if it's been designated as needing economic assistance. The real killer in the "garden state" is the property tax, which is the worst in the country. If you live here, you will certainly know what being "fleeced" is like...no thanks to the crooked politicians that seem to thrive here.

  • Report this Comment On May 04, 2013, at 11:46 AM, TennilleKuhlman wrote:

    We just moved to East Tennessee from SoCal. First thing I noticed was this NASTY high price sales tax in Tennessee. Their excuse was "We don't have state tax". Then get it! They don't even have many parks for the kids to play at. I called the city councial about bringing more parks for the kids to play at. I was born and raised in SoCal and parks all over the place and my kids LOVE them! They also have all these after school activities like football and cheer and yet, my daughter has ADHD and they don't have the after school tutoring she had in SoCal. Their $ spending is WACKED!!! We're now moving out of Tennessee because how awful it is for what WE consider important; like education. I had to call Washington D.C. to wake TN up on my daughters needs. Then TN (Washington school district in Johnson City, TN) was VERY quickly on the ball my the head of the special ed department. We're now moving to Huntsville, Alabama in Madison in June. They are very ready for my daughter and her testing and needs hands down! Alabama focuses on education the same way is SoCal; a prioroty; over football and cheer funds!

  • Report this Comment On May 04, 2013, at 12:09 PM, awwwralph wrote:

    Wow, a list of highest sales tax states that leaves off California? The state is 7.5% with county and local taxes that can take it up to 10%. The people moving to Tenn from Cal complaining about the tax in Tenn? Really?

  • Report this Comment On May 04, 2013, at 12:20 PM, Hankspen wrote:

    Sales tax is 10% where I live and shop in Talladega county and St Clair county Alabama. This drives up grocery bill tremendously. We get very poor services for the taxes paid, particularly in Talladega County.

  • Report this Comment On May 04, 2013, at 12:37 PM, phillipzx3 wrote:

    I wish you would have added States with the highest income tax, as well. Next door to Washington is Oregon...8% income tax.

  • Report this Comment On May 04, 2013, at 12:47 PM, misakowalt wrote:

    Looks like the fool missed California with our near 9% Sells Tax PLUS our high Personal Income Tax.

    Tennessee has a high sells tax but NO Personal Income Tax except on investment dividends.

    Did the Mottley get fooled by California lawmakers?

  • Report this Comment On May 04, 2013, at 2:30 PM, wolflin wrote:

    I find Tennille from SoCal a bit disingenuous. Alabama, really!! I came from Texas to Tenn and both kids went to Auburn in Alabama, Football and sports are Always No. 1. Education in these states comes primarily in the form of Private Schools. 50% of students go to private. In which Hdhd students do get attention. The public schools are generally inadequate for college prep. E.Tenn? How can u say their are no parks, what do you call the Great Smokey Mountains and the Appalachian Trail, white water rafting on the Olympic white water river, Ocoee, OMG!! This state is awesome in outdoor activities!!

    Huntsville, you need a lake house to have fun. We have one.

  • Report this Comment On May 04, 2013, at 2:41 PM, eveslegacy wrote:

    Like Tennille from SoCal, I also moved from SoCal to TN and have found just having sales tax to be heaven, and that sales tax is lower than CA. Of course, there is sales tax (lower rate) on food, but in the end, we pay far lower taxes than I did in CA, even with my property taxes protected by prop 13. We purposely chose an area where the schools are good (they're really lousy in SoCal these days). There are lots of parks and after school, the playgrounds of the schools are parks. I can be in downtown Nashville in 20-25 minutes and get to live slightly in the country. When I go to Alabama, I pay more in sales tax, and they have both state and local income taxes. I love it here. Blessings,

  • Report this Comment On May 04, 2013, at 2:41 PM, wolflin wrote:

    Tennessee's sales tax is large and it covers everything, including food. I shop at stores here, but I shop at the online stores to get things that we don't have here and to have it delivered to the house. We don't like to stuff large items into our expensive cars or strap them on the roof. Its tacky and besides we have really big hills and sometimes snow. Luv FedEx and UPS.

  • Report this Comment On May 04, 2013, at 2:48 PM, johnnysnutsack wrote:

    The motley fool has turned into the bleacher report of finance reporting. Uninformed, unvetted, and largely terrible writing.

    This article is moronic. Go to chicago and purchase a $10 item and you will go into pocket for just under $11 given their 9.25% sales tax. And ehhhhh, i dont see illinois on this list.

    Illinois sales tax alone is 6.25%, which is higher than all but two on that useless list. Caplinger, ya motard.

  • Report this Comment On May 04, 2013, at 2:57 PM, rojiopero wrote:

    like the graphic, cleaver.

  • Report this Comment On May 04, 2013, at 4:14 PM, TNRedneck wrote:

    Moving from WI to TN saves us nearly $13K per yr in income and property taxes. In order to spend that $13K on sales taxes when you look at the difference (3.65%) between the sales taxes in Milwaukee area, 5.60% vs 9.25% we would have to purchase over $300K in goods and services per yr. Ain't gonna happen! I'll take a sales tax any day, I control how much in taxes I pay based on my buying habits, the state does not tell me how much I will pay them based on my income. The tax base to generate revenue is much larger with a sales tax than with an income tax. Tourists and those working the underground (working for cash) economy, i.e. drug dealers, gamblers, ILLEGALS, etc. pay sales taxes to the state coffers.

    National we would benefit from passing the FairTax Act, it would fully fund SSI, Medicare, and all other essential government services while eliminating federal income and payroll taxes, without raising prices of goods or services. You would never file another federal tax return, no more tax breaks for special interest groups that pay off the politicians.

    There are built-in protections for low income people to minimize how much FairTax they pay.

    You pay based on what you buy, not on what you earn. You earn $1000 you keep $1000 (minus state and local income taxes).

  • Report this Comment On May 04, 2013, at 4:26 PM, ubrowp2 wrote:

    Alabama is missing from the list. Sales tax in AL is close to 10%. Also, with respect to TN, sales tax is high but there is no state income tax.

  • Report this Comment On May 04, 2013, at 5:12 PM, TMFGalagan wrote:

    Hi all - As I tried to make as clear as possible, the Tax Foundation data is based on averages of local add-on taxes. So some areas will see different tax rates than the average, and some areas in states other than those mentioned here may have higher rates.

    best,

    dan (TMF Galagan)

  • Report this Comment On May 04, 2013, at 8:37 PM, rangerchuck wrote:

    There are approximately 8500 independent bodies that have sales taxes in this country, has anyone figured out how a company, small, medium or large is going to figure out how to collect the tax at what rate and distribute it to the proper authority. When the fools in DC figure that one out, maybe and only maybe should we allow the tax to go into effect. The citizens of this country pay more than enough tax, government should look at better and more efficient way to provide the services that are required, and frankly do away with the one that are not required.

  • Report this Comment On May 04, 2013, at 10:26 PM, THEJonathanSwift wrote:

    I noticed the author failed to mention how hard the poor are hit by the sales taxes. The sales tax negatively impacts the poor the most, the middle-class somewhat less and the wealthy the least. The idea that poor pay the most (relative to their total income) is deplorable to the point of being called evil.

  • Report this Comment On May 04, 2013, at 10:28 PM, JonBranda wrote:

    The Tennessee sales tax in not as much a problem as is the property taxes in Memphis & Shelby County. With the taxes being put onto the people of Memphis you would think we would have some of the best services offered anywhere. What we have is the one of the highest crime rates (Police wages and budgets cut almost 5%) in the country, our streets are almost 3rd world condition and education is a joke. Property tax raises are in the works again due to the population moving away, as an already over taxed population is heading for the border once again.

  • Report this Comment On May 04, 2013, at 11:16 PM, hetatdta wrote:

    that's b.s. cigarettes and everything is cheaper in Louisianan than Texas, and texas is cheap

  • Report this Comment On May 05, 2013, at 12:05 AM, 98059 wrote:

    Washington isn't 8.86%. Most of the state is at 9.5 or 9.75% sales tax.

  • Report this Comment On May 05, 2013, at 12:23 AM, SkepikI wrote:

    @tennilleKulhman- Thanks for the belly laugh. Having fled CA 7% income and nasty property taxes plus sales tax years ago, i wish you a merry park hopping spree. No doubt Tenn is grateful...

  • Report this Comment On May 05, 2013, at 2:53 AM, SuntanIronMan wrote:

    @THEJonathanSwift

    Mr. Caplinger mentioned that very thing in his article. Not as vehemently as you put it, but he indeed mentioned it.

    "Yet opponents note [sales taxes'] regressive impact on low-income residents."

  • Report this Comment On May 05, 2013, at 10:12 AM, richardc2000 wrote:

    The list of high tax state are states that is being sued by obama.....

  • Report this Comment On May 05, 2013, at 10:26 AM, wizarddrummer wrote:

    Lame places like Oklahoma (I lived there for awhile) have nothing else going for them except iffy Agriculture (droughts and other bad weather can cause huge problems with that) and the Prison Industry.

    Their corrupt State Legislators with a State Budget that is so bloated forces them to tax the people more.

    Sure, there's other industries there but there's not enough revenue from them.

    Also, there are not enough people to support the bloated State Expenditures.

  • Report this Comment On May 05, 2013, at 4:38 PM, fredwina wrote:

    Well ya missed one .... Illinois is 6.25 % and in some places i.e. Chicago it's 9.5%. So of course we drive to Indiana or Wisconsin to buy, gas, tobacco products and basically everything.

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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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