Sales taxes in the United States are levied not only by state governments but also by city, county, special district, and Native American governments. A new study from the Tax Foundation updates the rates from across the country and ranks the largest U.S. cities on their combined sales tax rates.
Birmingham and Montgomery, both in Alabama, have the highest combined state and local sales tax rate among major U.S. cities, at 10 percent. They are followed by Chicago, Illinois; Glendale, Arizona; and Seattle, Washington, each with rates of 9.5 percent.
Portland, Oregon and Anchorage, Alaska have neither a state nor local sales tax, giving them a rate of zero. Honolulu, Hawaii has the third lowest sales tax among major cities with a rate of 4.5 percent; however, Hawaii’s overly broad sales tax makes this not strictly comparable with other states. Five local jurisdictions in Virginia (Arlington, Chesapeake, Norfolk, Richmond, and Virginia Beach) are also relatively low on the list, levying just a 5 percent statewide sales tax.
"Of course, sales taxes are just one part of an overall tax structure and should be considered in context," said Tax Foundation economist Scott Drenkard. "For example, Washington State has high sales taxes but no income tax while Oregon has no sales tax but high income taxes. Many factors influence business location and investment decisions, but sales taxes are something within policymakers’ control that can have immediate impacts."
Just as the sales tax rates in jurisdictions vary widely, the sales tax base varies as well. Most states exempt groceries from the sales tax, others tax groceries at a limited rate, and still others tax groceries at the same rate as all other products. Some states exempt clothing or tax it at a reduced rate.
The taxation of services and business-to-business transactions also vary widely by state. Experts generally agree that Hawaii has the broadest sales tax in the United States, taxing many products multiple times and, by one estimate, ultimately taxing over 99 percent of the state’s personal income. This base is far wider than the national median, where the sales tax base applies to about 34 percent of personal income.
Tax Foundation Fiscal Fact No. 296, “Sales Tax Rates in Major U.S. Cities” by Scott Drenkard, Alex Raut, and Kevin Duncan is available online.
The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937.