The price on the sticker isn't the price you ultimately pay. Every state except Alaska, Delaware, Montana, New Hampshire and Oregon charge a state sales tax that is collected when you purchase certain products and services. States like sales taxes because they are easy to calculate and collect. Because the tax doesn't come with exemptions for certain individuals, it's difficult for consumers to get around paying the tax. Thirty-six states also allow for a local sales tax. In these states, consumers pay a state tax along with a local tax. Because this local tax is substantial in some states, looking at the combined rate is the only way to know the true sales tax rate in a certain community. If you're planning to move in the near future, you might want to dig a little deeper if you're heading to one of these states with high sales taxes.
State Sales Tax Rate: 6.25%
Average Local Sales Tax Rate: 1.95%
Combined Rate: 8.20%
Illinois has one of the most complicated sales tax systems of all states, with more than 1,000 local taxing jurisdictions. Localities can charge as much as 5.25%, and Chicago has the highest combined sales tax of all cities in the United States at 9.6%. Illinois is also one of the few states that require sales taxes be imposed on online purchases even if the retailer has no presence in the state.
State Sales Tax Rate: 6.30%
Average Local Sales Tax Rate: 1.96%
Combined Rate: 8.26%
Kansas has a higher sales tax rate than 79% of all states. In the state capital of Topeka, Kan., businesses collect a county tax of 1.15% and a city rate of 1%. Many states either reduce or eliminate taxes on necessities like drugs, groceries and clothes, but Kansas taxes all purchases at the same rate.
State Sales Tax Rate: 4.00%
Average Local Sales Tax Rate: 4.33%
Combined Rate: 8.33%
Alabama's state rate is a modest 4%, but localities are permitted to charge as much as 10% in taxes. In addition, Alabama doesn't exempt groceries and food from the state sales tax, but it does exempt most prescription drugs.
State Sales Tax Rate: 4.00%
Average Local Sales Tax Rate: 4.48%
Combined Rate: 8.48%
New York allows localities to charge as much as 13.075% in local taxes, with most necessities being exempt from sales tax. New York also exempts college textbooks and clothing items priced under $110.
State Sales Tax Rate: 6.00%
Average Local Sales Tax Rate: 2.58%
Combined Rate: 8.58%
Arkansas allows localities to charge as much as 9.25% in sales tax. The state exempts prescription drugs and imposes a special sales tax rate on necessities like groceries and clothes.
State Sales Tax Rate: 4.50%
Average Local Sales Tax Rate: 4.16%
Combined Rate: 8.66%
Oklahoma has a maximum local tax rate of 8.5%, and doesn't exempt any purchases from its sales tax. Consumers making purchases tax-free, such as purchases online, have to claim those purchases on their state taxes.
State Sales Tax Rate: 6.50%
Average Local Sales Tax Rate: 2.30%
Combined Rate: 8.80%
Although Washington has the fourth highest sales tax rate, it is one of nine states that doesn't have a state income tax. The state exempts purchases of necessities from its state sales tax. Other purchases, like unhealthy food and non-essential pharmaceuticals qualify for a special tax rate.
State Sales Tax Rate: 4.00%
Average Local Sales Tax Rate: 4.85%
Combined Rate: 8.85%
Louisiana allows localities like parishes (equivalent to counties) and cities to charge up to 10% in state taxes. Baton Rouge, La. charges a 5% tax in addition to the 4% state tax rate making the effective tax rate in the city 9%. Louisiana doesn't exempt any purchases from its state sales tax.
State Sales Tax Rate: 6.60%
Average Local Sales Tax Rate: 2.52%
Combined Rate: 9.12%
Arizona calls its sales tax a transaction privilege tax. Some jurisdictions, which are allowed to charge as much as 10.6%, allow the state to collect its taxes while others collect separately. Arizona exempts groceries and prescription drugs from its state sales tax.
State Sales Tax Rate: 7.00%
Average Local Sales Tax Rate: 2.45%
Combined Rate: 9.45%
Tennessee has the highest overall tax rate collecting 80% of its revenue from sales and selective taxes, but charges no state income tax. Like Kansas, Tennessee does not exempt any purchases like drugs or clothes, but the state does charge a reduced sales tax on other items like groceries.
The Bottom Line
When comparing taxes, consider not only sales taxes, but also state income tax rates. States with a low income tax and higher sales tax may represent a better value than others with lower sales tax rates.
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