Nearly every state in the union charges a sales tax, and the tax levied on goods and services sold at the retail level is just one of many tools states use to collect revenue, along with licensing and taxes on income, corporations, and property. Sales taxes tend to attract less attention than income taxes, though general sales taxes and gross receipts taxes, which are charged to businesses for transactions, contribute nearly as much revenue as state income taxes. In 2013, states collected $254.7 billion in sales and gross receipts taxes -- about $806 per American -- versus $980 per person in state income taxes.
The median sales and local tax in the U.S. is just under 7%. Here's a look at the five states with the highest combined state and local sales taxes:
No. 1: Tennessee, 9.45%
Tennessee charges a statewide rate of 7%, putting it in second place alongside Indiana, Mississippi, New Jersey, and Rhode Island. Local taxes help tip the scales to almost 10%, as municipalities are allowed to add on as much as 2.75%. However, Tennesseans benefit from having no earned income tax, and they have the sixth-lowest overall state and local tax burden in the country, according to the nonprofit Tax Foundation.
No. 2: Arkansas, 9.19%
Arkansas, Tennessee's neighbor to the west, ranks No. 2 with a combined state and local sales tax rate averaging just over 9%. Arkansas lifted its sales tax rate from 6% to 6.5% last year, making its composition of state and local taxes similar to Tennessee's. However, Arkansans pay more in taxes overall, with their state and local tax burden averaging 10.3% to rank 12th-highest in the country.
No. 3: Louisiana, 8.89%
Louisiana, another Southern state, charges an average sales tax near 9% on goods and services. Unlike Tennessee and Arkansas, Louisiana has a relatively low statewide sales tax rate of 4%, but it allows municipalities to charge as much as 7%. Therefore the state has the highest average local sales tax rate in the nation, at 4.89%. However, Louisianans nevertheless have the fifth-lowest overall tax burden in the nation, thanks in part to relatively low income taxes.
No. 4: Washington, 8.88%
Washington state charges no income tax or corporate income tax, so it relies heavily on the sales tax to fund its budget. The 6.5% statewide rate is one of the highest in the nation. Washingtonians' average state and local tax burden is just below the national median at 9.4%. However, the state's tax structure was ranked as the most regressive by the Institute on Taxation and Economic Policy, which said that the poorest 20% of Washingtonians pay an average of 16.9% of their income in state taxes, compared to a rate of just 2.8% for the top 1%.
No. 5: Oklahoma, 8.72%
With a statewide sales tax rate of 4.5%, the Sooner state is one of the most reliant on local taxes: While residents pay 4.22% on average in local sales taxes, the state allows a maximum local sales tax of 6.5%, which makes for sales taxes as high as 11%. Still, Oklahomans have a relatively low tax burden, paying 8.47% of income in state and local taxes compared to a nationwide average of 9.8%.
Taxes and sales
Considering the average state has a sales tax near 7%, a couple of percentage points extra for the states above may seem negligible, but sales taxes do play a role in consumer decision making. Differences in local sales taxes can draw shoppers from one community to another, especially when the difference is significant. Salem County, N.J., for example, is exempt from New Jersey's 7% sales tax because it borders Delaware, which charges no sales tax. Though some states -- including Virginia, Maine, Ohio, and Arkansas -- have recently raised sales tax rates, revenue from sales taxes should improve alongside the economy.
Last year, the total amount collected from sales taxes nationwide rose 3.9%, while state income tax collection rose 10.3%; this shows that income is more sensitive to economic conditions than spending and demonstrates one reason why sales taxes are considered regressive.
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