Sales and Business Taxes in the 50 States

The Tax Foundation, a nonpartisan think tank has just released a comprehensive and helpful report on business taxes in the 50 states. Ten states are ranked as the best for business taxes, while another ten rank the lowest, California holding the 48th rank. High tax rates, including sales tax, have real consequences on California’s business climate, employment levels and economic growth. In the report, sales tax is examined in great detail across the 50 states:

Sales Tax Rate

The tax rate itself is important, and a state with a high sales tax rate reduces demand for in-state retail sales. Consumers will turn more frequently to cross-border, catalog, or online purchases, leaving less business activity in state. This sub-index measures the highest possible sales tax rate applicable to in-state retail shopping and taxable business-to-business transactions. Four states—Delaware, Montana, New Hampshire, and Oregon—do not have state or local sales taxes and thus are given a rate of zero. Alaska is sometimes counted among states with no sales tax since it does not levy a statewide sales tax. However, Alaska localities are allowed to levy sales taxes and the weighted statewide average of these taxes is 1.79 percent.

The Index measures the state and local sales tax rate in each state. A combined rate is computed by adding the general state rate to the weighted average of the county and municipal rates.

Of the 45 states with a statewide sales tax, Colorado’s 2.9 percent rate is lowest. Seven states have a 4 percent state-level sales tax: Alabama, Georgia, Hawaii, Louisiana, New York, South Dakota, and Wyoming. At the other end is California with a 7.5 percent state sales tax, including a mandatory statewide local add-on tax of 1 percent. Tied for second-highest are Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee (all at 7 percent). Other states with high statewide rates include Minnesota (6.875 percent) and Nevada (6.85 percent).

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