While President Obama's push to raise federal income taxes for the wealthy gets lots of attention, the continuing upward creep in the sales tax rates imposed by state and local governments has gotten less notice.

But Vertex Inc., which calculates sales tax for internet sellers, reports that the average general sales tax rate nationwide reached 8.629% at the end of 2009, the highest since the Berwyn, Pa., company started tracking data in 1982. That was up a nickel on a taxable $100 purchase from a year earlier and up nearly 40 cents for the decade. The highest sales tax

In Pictures: America's Highest Sales Taxes

Forbes 2010 Tax Guide

10 Highest State Income Tax Rates

rate in the country now stands at 12%. (Sales tax was introduced as a temporary measure. To learn more about this and other similar taxes, see "Temporary" Taxes That Stuck.)

During 2009, seven states and the District of Columbia raised sales tax rates, with one jurisdiction - North Carolina - actually doing it twice. Only four states hiked rates in 2008 and only one in 2007. Given state budget problems, the 2009 state sales tax increases aren't surprising. States have also been raising income tax rates on the wealthyand on corporations and boosting excise taxes on alcohol and tobacco. With states now facing record budget shortfalls, more tax increases seem likely.

State level sales tax generally accounts for only about two-thirds of the total sales tax bill. The rest comes from levies assessed by counties, municipalities, Indian tribes and special-purpose taxing districts funding mass transit, urban renewal and even stadiums. Among lower level jurisdictions such as counties and towns, Vertex counted 649 new or increased sales tax rates during 2009 and just 192 reductions.

The result is a wide range of combined sales tax rates across the country. At the bottom: 0%, found in all of Delaware and New Hampshire, and most of Montana, Oregon and Alaska. The country's highest rate now is 12%, in the tiny portion of tiny Arab, Ala., (population 7,500) sticking into Cullman County. The rest of the northern Alabama town, in no-sales-tax Marshall County, pays just 8%.

Right now Chicago has the highest big-city rate, 10.25%. But in a move forced by Cook County lawmakers, the rate is scheduled to drop on July 1 to 9.75%, matching that of Los Angeles. In New York City the total bite is 8.875%. Other high big-city rates include San Francisco and Seattle (9.5%), New Orleans (9%), Houston, Dallas and Charlotte (8.25%), Las Vegas (8.1%) and Philadelphia and Atlanta (8%).

In Arizona, voters will go to the polls May 18 to pass judgment on a 1% rise in the state's 5.6% rate for three years. If approved, the rate in Phoenix would jump from 8.3% to 9.3%.

Some of the highest sales taxes in the nation are designed to grab dollars from tourists. The New Orleans International Airport has a special 10.75% rate, while Snowmass Village, the ski resort in Colorado, levies a 10.4% sales tax. (Many locales also impose special higher taxes on services purchased by tourists, such as rental cars and hotel rooms.)

Nationally, sales taxes in 2008 generated more revenue for state and local governments - about $450 billion, a recent Government Accountability Office report suggests - than did either property taxes ($411 billion) or personal income taxes ($310 billion).

At the federal level and in some states, the income tax is progressive, with higher rates imposed on upper-income taxpayers. But rich and poor pay the same sales tax rate. In many states, however, there's no sales tax on food or medical prescriptions.

The combined local sales rate is what local merchants charge for in-person customers. Through a parallel system called the use tax, it's also what residents in a given jurisdiction are supposed to pay on purchases over the internet from out-of-state sellers, but such payments are widely flouted. Congress has declined to pass legislation that would require large internet only sellers like Amazon.com (Nasdaq:AMZN) and Overstock.com (Nasdaq:OSTK) to collect sales taxes for all states. (Currently, they only have to do so for states in which they have some physical presence.)

Many big online merchants, including Wal-Mart (NYSE:WMT), Dell (Nasdaq:DELL), Office Depot Inc. (NYSE:ODP) and Staples Inc. (Nasdaq:SPLS), collect sales taxes from internet buyers. Some states, with New York in the lead, have adopted new "Amazon" laws designed to force the web giant and others to collect their taxes. More such laws are likely this year.

West Virginia adopted the country's first sales tax in 1921. Periodically, the federal government has considered a national sales tax, but such proposals have never gotten traction.

In Canada, which has a national 5% sales tax, all but two of the provinces (Alberta and Saskatchewan) have combined sales taxes of 12% or higher. The highest is the 15.5% hit on Prince Edward Island.

Related Articles
  1. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  2. Fundamental Analysis

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
  3. Economics

    Explaining Fair Market Value

    Fair market value is the price at which a buyer and seller are willing to exchange a good.
  4. Taxes

    4 Reasons Why Delaware Is Considered a Tax Shelter

    Understand what a tax shelter is and how one is normally created. Learn about Delaware and the top five reasons why it's considered a tax shelter.
  5. Mutual Funds & ETFs

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  6. Mutual Funds & ETFs

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  7. Taxes

    Explaining the Tax Base

    A tax base is the value of assets, investments or income streams that a government can tax.
  8. Mutual Funds & ETFs

    The Basics of Income Tax on Mutual Funds

    Learn about the basics of income tax on mutual funds, including what types of income may be subject to the capital gains tax rate.
  9. Investing Basics

    Tax-Efficient Strategies For International Clients

    In a globalized world, international clients seek to diversify holdings by accessing U.S. markets. Creative strategies will help optimize tax positioning.
  10. Taxes

    Top Annuity Tax Deferral Strategies

    Annuities can provide tremendous tax advantages for retirement savers. Here are some tax deferral strategies to consider.
  1. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  2. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  3. How are variable annuities taxed at death?

    If the owner of a variable annuity dies before receiving full payment, his beneficiary must pay taxes on any earnings received. ... Read Full Answer >>
  4. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  5. How can I find tax-exempt mutual funds?

    Tax-exempt mutual funds can be found at many prominent investment firms. Most mutual funds offer a variety of investment ... Read Full Answer >>
  6. Are dividends considered passive or ordinary income?

    Despite the fact that earning dividends requires no active participation on the part of the shareholder, they do not meet ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!