Everything you buy will cost a little more when sales taxes are applied, and you need to be concerned about federal as well as state sales taxes.
The price of some goods is increased even further when counties and towns add their own taxes on top of the states.
If you don’t want to pay quite a little more every time you go to the checkout, you’ll need to purchase in states with either no sales tax, a very low tax rate, or a sales tax holiday. As of 2022, these areas have the best and worst sales tax rates.
State Sales Taxes: Lower States
The clear front-runners are the five states (Delaware, Montana, New Hampshire, Alaska, and Oregon) that have no state-level sales taxes at all as of 2022.
Alaska occupies a somewhat ambiguous space. Although the state doesn’t have a sales tax, towns within it do; the statewide average is 1.76 percent.
The list is completed by the 15 states with sales tax rates of less than 5%.
- Colorado’s rate is 2.9 percent.
- With a combined 4 percent, Alabama, Georgia, Hawaii, New York, and Wyoming have
- 4.225 percent in Missouri.
- South Dakota and Oklahoma have 4.5 percent.
- North Carolina received 4.75 percent.
- Louisiana has a state-administered sales tax of 4.45 percent, but municipal sales taxes make it one of the states with the highest sales taxes rather than one of the lowest.
The Largest Sales Taxes by States
States with exceptionally high state sales tax rates are at the other end of the scale. When consumers wish to make large purchases, these rates can be so high that they travel across state lines to lower-tax or tax-free areas. This commonly happens in Massachusetts regions close to tax-free New Hampshire.
California has the unenviable distinction of having the highest statewide sales tax rate. Following that is:
- 7% in Tennessee, Indiana, Mississippi, Rhode Island, and others.
- In Minnesota, 6.875 percent
- Nevada’s percentage is 6.85.
- New Jersey has a 6.625 percent unemployment rate.
- Washington, Arkansas, and Kansas each have 6.5 percent.
Which Expenses Are Taxed?
Food and numerous other necessities, including clothing and prescription drugs, are excluded from sales tax in the majority of these states with low rates. But other states have different taxes that are higher on things like gasoline, alcoholic drinks, and tobacco.
Starting in 2020, a pack of 20 cigarettes will cost you an extra $1.78, and a pack of 25 cigarettes will cost you an extra $2.23 starting in 2020 if you buy tobacco products there.
But if you reside in Wyoming, you need not despair. As of 2022, the state’s beer excise tax was the lowest in the nation at just $0.02 a gallon.
Once local taxes have been included,
Local sales taxes are permitted in 38 states. Hawaii, Wisconsin, Wyoming, and Maine have the lowest total rates of those that do, trailing only Alaska. Hawaii, Wyoming, Wisconsin, and Maine each have 4.44 percent, 5.22 percent, and 5.43 percent.
In some parts of Tennessee and Louisiana, the total state and local rates are as high as 9.55 percent, which is the highest total in the nation.
As of 2022, Arkansas, Washington, and Alabama all have total state and local tax rates of 9.24 percent (9.47 percent), and 9.29 percent.
In order to help pay for highway and road upkeep, Colorado Springs residents agreed to raise the city’s sales tax to 3.12 percent starting in 2016. The higher rate will expire after five years.
As of January 2021, that rate was reduced to 3.07 percent. Nevertheless, the city’s overall sales and use tax rate is 8.20 percent. 6
Adjustments for Other Taxes
Sales taxes are only one of many ways that state governments can take money out of your wallet to fund their operations.
Some states take and then give it all back. They save residents in other locations while generating the majority of their income from a single tax source.
For instance, Tennessee’s high combined state and local sales tax rate is balanced by the absence of an income tax in the state. If you reside there, your earned income is tax-free.
In contrast, even though New Hampshire does not have a sales tax, residents must pay high property taxes.
Why Are Sales Taxes Paid?
Sales taxes are used to fund a range of state and local government services, including schools, fire departments, and repairs to municipal sewage systems and roads. States often give people the chance to vote for or against sales taxes for certain reasons.
Which Sales Taxes Can You Deduct?
You are allowed by the IRS to deduct sales taxes on your federal tax return in addition to other state and local taxes.
For a combined deduction of up to $10,000 for single filers and $5,000 for married filers, you can write off all state and local income, sales, and property taxes.
What States Don’t Charge Sales Tax?
Alaska, Delaware, Montana, New Hampshire, and Oregon are the five states in the U.S. that do not currently impose a sales tax.