Here's Where People Pay the Highest (and Lowest) Sales Tax in America

Few topics are as hotly contested as taxes. A national sales tax bill dubbed the Fair Tax Act, which was introduced to the House of Representatives last month, has added fuel to the debate.

In short, the act proposes a complete overhaul of our federal tax system by implementing a national sales tax of approximately 30% in lieu of all other forms of federal taxes. The act would also abolish the IRS. The bill is popular among certain factions of the Republican Party, but does not have broad support in the House and is unlikely to pass the Senate. President Joe Biden said he would veto the bill if it manages to pass both chambers.

Still, the proposal has renewed focus on our current sales tax system, which is a patchwork apparatus with tax rates varying widely by state — and with several states collecting no sales tax whatsoever. States often heavily rely on revenue generated from sales tax, and if the Fair Tax Act were to be enacted, it's likely that residents in those states would be paying state-level sales tax on top of the 30% national rate.

Currently, some localities levy additional sales tax on top of the state rate, which can further jack up the ultimate price consumers pay at the checkout counter. For example, in Gillham, Arkansas, residents pay 6.125% in local sales taxes on top of their state's 6.5% rate — for a grand total sales tax rate of 12.625%.

Here’s a look at the states with the highest and lowest sales tax rates in 2023, according to an analysis from the Tax Foundation. Bear in mind that the sales tax you pay on purchases can be higher than the rates listed below if there are local taxes tacked on to the state tax.

States with the highest sales tax

1. California: 7.25% sales tax rate
2. Indiana: 7% sales tax rate
3. Mississippi: 7% sales tax rate
4. Rhode Island 7% sales tax rate
5. Tennessee: 7% sales tax rate
6. Minnesota: 6.875% sales tax rate
7. Nevada: 6.85% sales tax rate
8. New Jersey: 6.625% sales tax rate
9. Arkansas: 6.50% sales tax rate
10. Kansas: 6.50% sales tax rate

States with the lowest sales tax

1. Georgia: 4% sales tax rate
2. Hawaii 4% sales tax rate
3. New York: 4% sales tax rate
4. Wyoming: 4% sales tax rate
5. Colorado: 2.9% sales tax rate
6. Alaska: no sales tax
7. Delaware: no sales tax
8. Montana: no sales taxes
9. New Hampshire: no sales tax
10. Oregon: no sales tax

What the experts say

Sales tax is what’s known as a “regressive tax” because research shows that it disproportionately burdens lower-income earners. According to the left-leaning Economic Policy Institute, regressive taxes increase inequality.

• “Sales taxes are levied on what people buy, as opposed to what they earn,” an EPI report states. “Since poor and middle-income families have to spend more of what they earn just to get by, they are paying a greater share of their income in sales taxes. That’s what we mean when we say sales taxes are regressive.”

The drastic difference in sales tax rates among states means that some folks have to pay hefty taxes on the goods they buy at the store, while folks a few miles away in a neighboring state may pay no sales tax at all. These differences spur some consumers to avoid sales tax by trekking to an area that offers a lower rate.

• In New Jersey, for example, the sales tax rate is 6.625% while the rate in neighboring Delaware is zero.

• “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,” the Tax Foundation report states.

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