introduction

In the United States, sales taxes are collected not only by state governments, but also by city, county, tribal, and special district governments. In many cases, these local sales taxes make up a significant portion of the total tax rate paid by consumers.

Twice a year we calculate the average combined state and local VATA sales tax is levied on the retail sale of goods and services and should ideally be levied on all final consumption with few exceptions. Many governments exempt goods such as food from tax. Broadening the tax base, for example by including food, could keep tax rates lower. A sales tax should exempt transactions between businesses which, if taxed, would result in tax pyramids.
Prices by state, using zip code-level sales TaxA tax is a compulsory payment or levy imposed by local, state, and national authorities on individuals or businesses to cover the costs of general government services, goods, and activities.
and population data. Here we present the combined state and local sales tax rates in large U.S. cities, defined as census-designated incorporated places with populations over 200,000.

Highest and lowest sales tax in big cities

Among major cities, Seattle, Washington, has the dubious honor of charging the highest combined state and local sales tax rate at 10.35 percent. The city surpassed Tacoma, Washington, at 10.3 percent in April, when King County (where Seattle is located) implemented an additional 0.1 percent sales tax to generate additional funds for nonprofits that provide cultural programs. Tacoma’s current rate is in effect through 2021. Chicago, Illinois, and Long Beach, Fremont, and Oakland, California, are tied for the third-highest tax rate among major cities at 10.25 percent. Until 2021, Chicago and Long Beach’s tax rates were the highest in the country at 10.25 percent (Fremont and Oakland had not yet joined them).

Baton Rouge, Louisiana, is the largest city with the highest local Sales tax rate of 5.50 percent. Both Baton Rouge and New Orleans, Louisiana, previously had a combined tax rate of 10 percent, but those cities’ tax rates dropped slightly with the partial expiration of a temporary state sales tax increase in 2018. Combined with a state tax rate of 4.45 percent, Baton Rouge’s combined tax rate is 9.95 percent.

St. Louis, Missouri, has a local tax rate just below Baton Rouge at 5.454 percent, and Colorado Springs has the third highest local tax rate at 5.3 percent. New York City and Yonkers both have a local tax rate of 4.875 percent, which is higher than New York’s statewide tax rate of 4 percent.

Portland, Oregon, and Anchorage, Alaska, have neither a state nor a local sales tax. Among large cities in states that impose sales taxes, Honolulu, Hawaii, has the lowest rate at 4.5 percent, which is collected entirely at the state level. Hawaii’s broad sales tax Tax baseThe tax base is the total amount of income, wealth, assets, consumption, transactions or other economic activities taxed by a tax authority. A narrow tax base is not neutral and is inefficient. A broad tax base reduces the cost of tax administration and allows for higher revenues at lower tax rates.
This does not necessarily make it comparable with other states, but serves as an example (despite the higher than recommended taxes on business-to-business transactions) of how Base wideningTax base broadening is the expansion of the scope of the taxable economy, usually by eliminating exemptions, exclusions, deductions, credits and other benefits. Narrow tax bases are not neutral, favor one product or industry over another, and can undermine revenue stability.
can lead to lower tax rates across the board. Madison, Wisconsin, with a sales tax rate of 5.5 percent, is another example of a low combined state and local sales tax rate. Richmond, Virginia, had a tax rate of 5.3 percent until October 1, 2020, when the Central Virginia region became the state’s third planning district subject to the additional 0.7 percent sales tax on regional transportation spending.

Nine major cities in states with a statewide sales tax do not impose their own local sales tax. This offers some relief, but does not change the often high tax rates in the respective states, such as 7 percent in Indiana, 6.25 percent in Massachusetts or 6 percent in Kentucky.

Changes in VAT rates in major cities

Cities on the Great Lakes have seen the largest increases in sales tax rates in recent years. In Minnesota, the seven-county Twin Cities metropolitan area, which includes both Minneapolis and St. Paul, saw a 1 percentage point sales tax increase in October 2023, split between 0.75 percent for transportation and 0.25 percent for housing, and St. Paul itself increased its municipal sales tax by another percentage point in April 2024, making St. Paul’s new combined tax rate 9.975 percent. In neighboring Wisconsin, the city of Milwaukee implemented a new 2 percent sales tax effective January 1, 2024, while Milwaukee County increased its sales tax rate from 0.5 to 0.9 percent. In Virginia, a new local sales tax authority in the Historic Triangle has led to higher tax rates in Chesapeake, Norfolk and Virginia Beach.

Many large cities have seen tax increases of 0.25 percentage points or more in combined state and local sales tax rates in recent years, including eight cities with increases in the first half of 2021, just before the last edition of this report was published. Some states have changed their tax rates since that report: For example, New Mexico has reduced its sales tax from 5.125 to 4.875 percent in recent years. A rare case of a large city reducing its sales tax rate in recent years was Tampa, Florida, in 2021, where a voter-approved county transportation tax was struck down as unconstitutional.

The role of competition in VAT

Sales tax avoidance is most likely in areas where there is a large difference between two jurisdictions’ sales tax rates. Research shows that consumers can and do leave high-tax areas to make larger purchases in low-tax areas. For example, there is strong evidence that Chicago-area consumers make larger purchases in surrounding suburbs to avoid Chicago’s high sales tax rates.

At the state level, businesses sometimes locate just outside areas with high sales tax rates to avoid paying their taxes. Delaware even uses its welcome sign at the state border to remind drivers that Delaware is the “home of tax-free shopping.” State and local governments should be careful not to raise tax rates too much compared to their neighbors, as this can result in lost revenue despite the higher tax rate.

Sales Tax bases: The other half of the equation

This report ranks states and cities by tax rates and does not account for differences in the tax base (that is, the structure of the sales tax that determines what is taxable and what is not). States can vary widely in this regard. For example, most states exempt groceries from sales tax, others tax them at a capped rate, and still others tax groceries at the same rate as all other products. Some states exempt clothing from sales tax or tax it at a reduced rate. Taxation of services and business-to-business transactions also varies widely from state to state.

Tax experts generally recommend that sales tax be levied on all final retail sales of goods and services, but not on intermediate transactions between companies in the production chain. These recommendations would result in a tax system that is not only broad-based but also “right-sized,” levied only once for each product the market produces. Although there is agreement in theory, the application of most state sales taxes is far from this ideal.

Hawaii has the most comprehensive sales tax in the nation. Many products are taxed multiple times, and one estimate suggests that sales tax ultimately amounts to more than 100 percent of the state’s personal income. This tax base is far broader than the national median, where the sales tax base is 37.2 percent of personal income.

Diploma

Sales taxes are only one part of the overall tax structure and should be considered in context. For example, Washington State has high sales taxes but no income taxes, while Oregon has no sales taxes but high income and corporate taxes. While many factors influence companies’ location and investment decisions, sales taxes are in the hands of policymakers and can have an immediate impact – especially since many large cities (23) have total tax rates of 9 percent or more, and six cities have rates above 10 percent.

State and local sales tax rates in major cities

The author would like to thank Benjamin Patrick for his help in compiling the data for this report.

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