Introduction

Sales taxes in the United States are levied not only by state governments but also by city, county, tribal, and special district governments. In many cases, these local sales taxes comprise a significant share of the overall rate paid by consumers.

Twice a year, we calculate average combined state and local sales tax A sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. rates by state, using zip code-level sales taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. and population data. Here, we present the combined state and local sales tax rates in major US cities, defined as Census-designated incorporated places with populations over 200,000.

Highest and Lowest Sales Taxes in Major Cities

Among major cities, Seattle, Washington, claims the dubious distinction of imposing the highest combined state and local sales tax rate, at 10.35 percent. The city eclipsed Tacoma, Washington, at 10.3 percent, in April, when King County (in which Seattle is situated) adopted a 0.1 percent additional sales tax to generate additional funding for nonprofits providing cultural programming. Tacoma's current rate dates to 2021. Chicago, Illinois, and Long Beach, Fremont, and Oakland, California, are in a four-way tie for third-highest major city rates at 10.25 percent. Until 2021, Chicago and Long Beach's 10.25 percent rates (Fremont and Oakland had not yet joined them) were the nation's highest.

Baton Rouge, Louisiana, is the major city with the highest local sales tax rate, at 5.50 percent. Both Baton Rouge and New Orleans, Louisiana, previously had combined rates of 10 percent, but these cities' rates dropped slightly with the partial sunset of a temporary state sales tax increase in 2018. Combined with a state rate of 4.45 percent, Baton Rouge's combined rate is 9.95 percent.

St. Louis, Missouri, has a local rate just below Baton Rouge at 5.454 percent, and Colorado Springs has the third-highest local-level rate at 5.3 percent. New York City and Yonkers both have a local rate of 4.875 percent, higher than New York's statewide rate of 4 percent.

Portland, Oregon, and Anchorage, Alaska, have neither a state nor a local sales tax. Among major cities in states that levy sales taxes, Honolulu, Hawaii, has the lowest rate, at 4.5 percent, imposed entirely at the state level. Hawaii's broad sales tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. makes this not strictly comparable with other states, but it does serve as an example (notwithstanding its higher-than-recommended taxes on business-to-business transactions) of how base broadening< /a>Base broadening is the expansion of the amount of economic activity subject to tax, usually by eliminating exemptions, exclusions, deductions, credits, and other preferences. Narrow tax bases are non-neutral, favoring one product or industry over another, and can undermine revenue stability. can lead to lower rates across the board. Madison, Wisconsin, with a sales tax rate of 5.5 percent, is another example of a low combined state and local sales tax rate. Richmond, Virginia, had a 5.3 percent rate until October 1, 2020, when the Central Virginia region became the state's third planning district subject to the 0.7 percent additional sales tax for regional transportation expenditures.

Nine major cities located in states with statewide sales taxes do not impose local sales taxes of their own. This provides some relief but does not change their states' often high rates, such as Indiana 's 7 percent, Massachusett s's 6.25 percent, or Kentuc ky's 6 percent.

Sales Tax Rate Changes in Major Cities

Great Lakes cities saw the greatest upward movement in sales tax rates in recent years. In Minnesota, the seven-county Twin Cities metro area, which includes both Minneapolis and St. Paul, saw a 1 percentage point sales tax increase, split between 0.75 percent for transportation and 0.25 percent for housing, in October 2023, and St. Paul itself increased its own city sales tax rate by another percentage point in April 2024, with St. Paul's new combined rate reaching 9.975 percent. In neighboring Wisconsin, the city of Milwaukee imposed a new 2 percent sales tax on January 1, 2024, while Milwaukee County increased its sales tax rate from 0.5 to 0.9 percent. In Virginia, a new local sales tax authority in the Historic Triangle has yielded higher rates in Chesapeake, Norfolk, and Virginia Beach.

Many major cities saw rate increases of 0.25 percentage points or more in their combined state and local sales tax rates over the past few years, including eight with increases in the first half of 2021, just before the previous edition of this report was published. Some states have changed their rates since that report: for example, New Mexico reduced its sales tax from 5.125 to 4.875 percent over the past couple of years. A rare case of a major city lowering its sales tax rate in recent years was in 2021 in Tampa, Florida, where a voter-approved county transportation tax was struck down as unconstitutional.

The Role of Competition in Sales Tax

Sales tax avoidance is most likely to occur in areas where there is a significant difference between two jurisdictions' sales tax rates. Research indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas. For example, strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs to avoid Chicago's high sales tax rates.

At the statewide level, businesses sometimes locate just outside the borders of high-sales-tax areas to avoid being subjected to their rates. Delaware actually uses its state border welcome sign to remind motorists that Delaware is the "Home of Tax-Free Shopping." State and local governments should be cautious about raising rates too high relative to their neighbors because doing so may lead to revenue losses despite the higher tax rate.

SalesTax Bases: The Other Half of the Equation

This report ranks states and cities based on tax rates and does not account for differences in tax bases (i.e., the structure of sales taxes, defining what is taxable and nontaxable). States can vary greatly in this regard. For instance, 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 varies widely by state.

Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain. These recommendations would result in a tax system that is not only broad-based but also "right-sized," applying once and only once to each product the market produces. Despite agreement in theory, the application of most state sales taxes is far from this ideal.

Hawaii has the broadest sales tax in the United States, taxing many products multiple times and, by one estimate, ultimately taxing more than 100 percent of the state's personal income. This base is far wider than the national median, where the sales tax base applies to 37.2 percent of personal income.

Conclusion

Sales taxes are just one part of the overall tax structure and should be considered in context. For example, Washington State has high sales taxes but no income tax, whereas Oregon has no sales tax but high income and business taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts-especially as a large number of major cities (23) have combined rates of 9 percent or more, and six exceed 10 percent.

State and Local Sales Tax Rates in Major Cities

The author would like to thank Benjamin Patrick for his help compiling the data for this report.

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