This morning, the nonpartisan Tax Foundation released its bi-annual report on state and local sales tax rates throughout the U.S. The report details the significant recent changes that have taken place in states’ treatments of sales taxes. Using a population-weighted average of local sales taxes, the piece also details the combined state and local sales tax rates for each state and explains how sales taxes fit into a state’s overall tax structure.

Our study addresses the fact that 38 states allow local governments to levy sales taxes within their jurisdiction. These local rates, when combined with the statewide rates, can result in substantially larger tax bites. The key findings include:

• The five states with the highest average combined state-local sales tax rates are Tennessee (9.45 percent), Arkansas (9.24 percent), Louisiana (8.91 percent), Washington (8.88 percent), and Alabama (8.85 percent).
• 45 states collect statewide sales taxes.
• 38 states collect local sales taxes.
• Sales taxes rates differ by state, but sales tax bases also impact how much revenue is collected from a tax and how the tax effects the economy.
• The District of Columbia successfully expanded its sales tax to include some services, which allowed reductions in its individual and corporate income tax rates.
• Differences in sales tax rates cause consumers to shop across borders or buy products online.

“Sales taxes are some of the most easily understood taxes because every time a consumer makes a purchase, they can see the rate on the receipt” says Tax Foundation economist Scott Drenkard. “However, although many shoppers are aware of their state’s sales tax rate, local add-on levies can catch consumers by surprise.

 “Of course, sales taxes are just one part of an overall tax structure and should be considered in context,” adds Drenkard. “For example, Washington State has high sales taxes but no income tax; Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts.”

Full report: State and Local Sales Tax Rates Midyear 2014