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State and Local Sales Tax Rates, 2021

State and Local Sales Tax Rates, 2021

Sales taxes are one of the common direct ways to collect tax revenue. Although graduated income tax brackets and rates are complex and confusing for many taxpayers, sales taxes are more straightforward to understand; Consumers can see their tax charge printed directly on the receipts.

In addition to state sales taxes, consumers also handle local sales taxes in 38 states. These rates can be substantial, so a state with a moderate sales tax rate could have a very high combined state and local tax rate compared to other states. This report provides a weighted average of the local tax population as of February 1, 2021, to explain each state's average local tax rate. We have provided a comprehensive state-by-state listing of local and state sales tax rates.


Combined state and local sales tax rates for 2021

Five states do not have a nationwide sales tax: Oregon, New Hampshire, Montana, Delaware, and Alaska. Of these, Alaska allows localities to collect local sales taxes. 

The five states with the highest combined local and state tax rates are Alabama (9.22%), Washington (9, 23%), Arkansas (9.51%), Louisiana (9.52%), and Tennessee (9.55%). The five states with the lowest combined median rates are Maine (5.50%), Wisconsin (5.43%), Wyoming (5.33%), Hawaii (4.44%), and Alaska (1.76%).


The state sales tax rate for 2021

California has the highest sales tax rate in the state at 7.25%. Four states are tied with the second-highest state rate, at 7%: Mississippi, Rhode Island, Indiana, and Tennessee. The lowest non-zero sales tax in the state is found in Colorado, which has 2.9%. It is followed by five states with rates of 4%: Hawaii, New York, Alabama, Georgia, and Wyoming. 

No state taxes have changed since April 2019, when the rate collected by the state of Utah fell from 5.95% to 6.1%. (The state rate is now officially 4.85%, but the state collects an additional 1.25% of mandatory taxes that are distributed to local governments, in addition to optional local taxes imposed by localities.) 

While voters in Arkansas did not raise the overall tax rate, voters in Arkansas made the state sales tax of 0.5% permanent by ballot measure in November. 


Local State Tax Rate for 2021

The five states with the highest local tax rates are Alabama (5.22%), Louisiana (5.07%), Colorado (4.75%), New York (4.52%), and Oklahoma (4.45%).

No state has seen rating changes in multiple locations since July last year. Most states with improved rankings are - South Dakota, Nevada, California, Iowa, and Utah - only did so in comparison to those that passed larger local rate increases.

Arkansas moved up from second to third on its own, although the actual change in local average was very small. The County of Crittenden takes some credit for this improvement because it has reduced the local rate from 2.75 to 1.75%. Yell County has reduced its rate from 1,875 to 1,125%. 

Missouri took the opposite direction from 13th to 12th. This change dates back to Kansas City increasing its fire protection tax by 0.25 percentage points, and Platte and Butler's counties levied a new tax on sales of 0.25% to support law enforcement. 

Ohio saw a 0.8 percentage point increase in Hamilton County taxes in October, which tipped the scales to drop the state from 21 to 20. 

Colorado has seen changes that have not led to a new ranking. Although Colorado Springs saw a reduction in the local sales tax from 3.12 to 3.07 percent, Denver raised the local average across the country. Mile High City voters decided to raise local taxes by 0.5% points to fund efforts to lessen the city's carbon emissions and support homelessness programs. 

It should be noted that some cities in New Jersey are located in "urban enterprise zones," where qualifying sellers can collect and remit half the state sales tax rate of 6.625% (3.3125%), a policy designed to help local retailers compete with neighboring Delaware, which forgoes sales tax. We represent this anomaly as an average local negative rate of 0.03%, and the combined rate reflects this decrease. Despite the somewhat favorable impact on the overall rate, this lower rate is an implicit recognition by New Jersey officials that its state rate of 6.625% is not competitive with neighboring Delaware, which has no sales tax.


Conclusion

Sales taxes are only part of a general tax structure and should be seen in context. For example, Tennessee has a high sales tax but no income tax, while Oregon has no sales tax but a high-income tax. While many factors influence a business's location and investment decisions, sales tax is under the control of regulators, and that can have an immediate impact.


Summary

  • Differences in sales tax rates can lead consumers to shop cross-border or buy products online.

  • The District of Columbia and forty-five states collect sales tax statewide.

  • Local sales taxes are collected in thirty-eight states. In some cases, they can compete with or even exceed state taxes.

  • No state tax has changed since Utah increased its sales tax share from 5.95% to 6.1% in April 2019.

  • Sales tax rates change from state to state, but the sales tax basis also affects the amount of proceeds collected from a tax and how the tax affects the economy.

  • The five states with the largest combined state and local tax rates are Alabama (9.22%), Washington (9, 23%), Arkansas (9.51%), Louisiana (9.52%), and Tennessee (9.55%).

  • The five states with the lowest combined median rates are Maine (5.50%), Wisconsin (5.43%), Wyoming (5.33%), Hawaii (4.44%), and Alaska (1.76%).

  • The five states with the highest local tax rates are Alabama (5.22%), Louisiana (5.07%), Colorado (4.75%), New York (4.52%), and Oklahoma (4.45%).


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