Comparative Tax Map Series | Sales Tax

This week we are looking at sales tax across the United States, and from the research we did, we can see the changes in the last 12 years with some states increasing their sales tax and others decreasing the rate.
The first map (figure 1) shows the sales tax rates in 2000. With the National average at 5.17%, it’s interesting to see that almost an equal amount of states are below the average (15), at the average (15), or above the average (15). Of the 45 states with a sales tax (Alaska, Oregon, Montana, Vermont and Delaware have no sales tax), the lower tax rate states seem to cluster in the South and Central U.S., where as the highest are spread around the U.S. But when it comes to finding the highest and lowest in the country, the states with these rates are in somewhat unpredictable places.

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Colorado and Virginia claim lowest sales tax rate at 3.00% for Colorado and 3.50% for Virginia. When you look at the surrounding states’ tax rates, you see that Colorado is surrounded with other low rate states, but when looking at some of Virginia’s surrounding states, their rates are nearly double the rate. Taking a look at the highest rates, Mississippi and Rhode Island can lay claim with 7.00% in both states. However, Mississippi is neighbored by states with rates in the 4.00% range. What makes this state’s sales tax so high? If you recall our income tax maps from last week, Mississippi has similar rates to Alabama and some of the other surrounding states. So it isn’t a low income tax that the state uses a higher sales tax to get income from, so perhaps next week when we look at estate tax the story of Mississippi will become clearer. As for Rhode Island, this state has always been a high tax state, so the high sales tax fits the story.
In 2011 the story changes in terms of who is the highest in sales tax. In the second map (figure 2) four states join the ranks of the highest: California, Tennessee, Indiana and New Jersey. The National average increased to 5.64%, thus showing that many states increased their rates. The four aforementioned states increased their rates by 1.00% to 2.00%. Even though other states may have increased their rates by 1.00%, they still remain lower than these four states. Overall, 22 states increased their sales tax (5.00% to 5.50% in Ohio), and only Colorado decreased their rate from 3.00% to 2.90%. Speaking of Ohio, it remains a favorable sales tax location at 5.50% when compared to surrounding states like Michigan (6.00%), Indiana (7.00%), Kentucky (6.00%), West Virginia (6.00%) and Pennsylvania (6.00%). The most interesting story in both years, and perhaps through all 12 years, is the relative location of the “no sales tax” states to their surrounding states. Each of the five states with no sales tax are neighbored by very high sales tax states. Is this due to their high taxes elsewhere, or is this an act to bring businesses and visitors into these states?

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Next week we look at estate taxes, or commonly known as “death tax”, and the story that the maps show.