The 5 states where shoppers feel the biggest tax bite
The daily pinch on your wallet from sales taxes can vary widely depending on where you live. Where does your state rate?
By Hal M. Bundrick, MainStreet
The government is always in our pocket, whether it's with income, property or sales taxes. We may be especially thinking about income taxes these days with the federal filing deadline looming, but the tax toll is a daily debt we pay.
By taking a population-weighted computation of local sales tax rates and combining it with the prevailing state rate, the Tax Foundation has computed the combined sales tax rate for each U.S. state.
When it comes to paying the most on purchases, Tennessee takes the biggest toll, with the highest average combined rate of 9.45 percent. Southern hospitality takes a back seat to taxes in Arkansas (9.19 percent) and Louisiana (8.89 percent), too. Washington (8.88 percent) and Oklahoma (8.72 percent) round out the top five states with the greatest sales tax burden for consumers.
However, you can take a free ride at the checkout counter in Oregon, Delaware and New Hampshire -- the only three states without either state or local sales taxes. The five states with the lowest average combined rates are Alaska (1.69 percent), Hawaii (4.35 percent), Wisconsin (5.43 percent), Wyoming (5.49 percent), and Maine (5.50 percent).
Of course, you can either pay at the register or file a form with a check – states with low or no sales taxes often have high income taxes. Oregon is an example. On the other hand, the Tax Foundation notes that Washington State has high sales taxes but no income tax.
But paying our citizen dues at the register is a tax we can plainly see on a receipt, and a big bite can cause consumers to shop across tax borders – or online.
"Avoidance of sales tax is most likely to occur in areas where there is a significant difference between two jurisdictions' sales tax rates," Scott Drenkard, economist for the Tax Foundation, writes in the report. "Research indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas, such as from cities to suburbs. For example, strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago's 9.25 percent sales tax rate."
Not only do high sales tax rates impact shopper behavior, but it can shape local business strategies as well.
"At the statewide level, businesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates," Drenkard says. "A stark example of this occurs in the northeast part of the country, where even though I-91 runs up the Vermont side of the Connecticut River, many more retail establishments choose to locate on the New Hampshire side of the river to avoid sales taxes. One study shows that per capita sales in border counties in sales tax-free New Hampshire have tripled since the late 1950s, while per capita sales in border counties in Vermont have remained stagnant."
Drenkard notes that the state of Delaware actually uses its state line welcome sign to remind motorists that Delaware is the "Home of Tax-Free Shopping."
The report ranks states and cities based on tax rates and does not account for differences in tax bases, such as what items are taxable and non-taxable. For example, most states exempt groceries from the sales tax, while others tax groceries at a limited rate. Some states exempt clothing, or tax it at a reduced rate.
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