The United States has a wide range of sales tax rates across different states, with some states having the highest sales tax rates in the country while others have the lowest.
When you shop, it’s important to remember that sales tax will increase the overall price of your purchases. You may spend more than planned if you don’t factor in sales tax. So, it’s wise to know more about it.
It’s important to know that sales tax rates, laws, compliance requirements, and collection methods can differ across states. Whether you’re a seller or a regular customer, keeping track of sales tax rates in different states is essential. To help with this, we’ve put together a guide detailing the states with the highest and lowest sales tax rates and their combined state and local sales tax rates.
What Items Are Taxable?
As a rule of thumb, all tangible personal property (TPP) is taxable under sales tax laws. It refers to goods that have a physical existence. However, some physical goods are not counted as tangible personal property and are exempt from sales tax requirements.
Most states exempt grocery from TPP because it is a necessity and frequently purchased by consumers. You must check your state’s Department of Revenue’s website to understand taxable and non-taxable goods.
States with Highest Sales Tax Rates
Some states in the USA charge a higher rate than others, making them one of the most expensive states for buyers. So, what state has the highest sales tax? The following 11 states have the highest sales tax rates in the US.
- California 7.25%
- Indiana 7%
- Mississippi 7%
- Rhode Island 7%
- Tennessee 7%
- Minnesota 6.875%
- Nevada 6.85%
- New Jersey 6.625%
- Arkansas 6.5%
- Kansas 6.5%
- Washington 6.5%
States with Lowest Sales Tax Rates
States with the lowest sales tax rates have a rate range between 2.5% – 5%. The following states have comparatively lower state sales tax rates than others.
- Colorado 2.9%
- Alabama 4%
- Georgia 4%
- Hawaii 4%
- New York 4%
- Wyoming 4%
- Missouri 4.225%
- South Dakota 4.5%
- Oklahoma 4.5 %
- North Carolina 4.75%
States with No Sales Tax
Did you know that some states do not charge state sales tax at all? It includes five US states, of which four have complete state and local sales tax exemption. The following are the states with no sales tax.
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
Among these states with zero sales tax, Alaska has locally imposed sales tax on some goods. There are other things too that you must know about states with no sales tax to manage your taxes efficiently.
Combined State and Local Sales Tax Rates
When discussing a state’s combined sales tax rate, we consider the following two taxes.
- State Sales Tax: It represents the sales tax levied by the state government on sales of goods and services. Forty-five states impose a state sales tax.
- Local Sales Tax: Besides the state, the government allows localities to charge local sales tax on sales. This rate varies from the state sales tax rate and may sometimes exceed it. Thirty-eight states charge local sales tax from customers.
The above lists present state-by-state ranking on the basis of state sales tax. However, local sales tax is an essential factor that you must pay attention to when discussing sales tax. Below are the states with the highest and lowest combined sales tax rates.
States with Highest Combined Sales Tax
The following states have the highest combined sales tax rates.
- Louisiana 9.55%
- Tennessee 9.48%
- Arkansas 9.46%
- Alabama 9.25%
- Oklahoma 8.99%
- California 8.82%
- Illinois 8.82%
- Kansas 8.66%
- New York 8.52%
- Arizona 8.37%
- Missouri 8.33%
States with Lowest Combined Sales Tax
The following states have the lowest combined sales tax rates.
- Alaska 1.76%
- Hawaii 4.44%
- Wyoming 5.36%
- Wisconsin 5.43%
- Maine 5.5%
- Virginia 5.75%
States with Gross Receipt Tax
People often compare gross receipt tax with sales tax. Gross receipt tax refers to the levy or tax paid by the seller of the goods. On the other hand, sales tax is levied upon customers or the buyers of the goods.
The following are the states with gross receipt tax.
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- Delaware
- Nevada
- Ohio
- Oregon
- Tennessee
- Texas
- Washington
Variation in Sales Tax
Besides sales tax rates, the sales tax bases also vary among states. What is taxable in one state may not be taxable in the other. For instance, some states like New Jersey exempt clothing from tax brackets, some set a certain limit for levy, while others regard them as taxable goods.
From the rates levied to what is taxable, all 50 states have their own set of laws and statutes. Not only that, these regulations are subject to change. That means states with low sales tax rates may become high tax-charging states and vice versa. Therefore as a business owner, you must keep track and take a comprehensive analysis of various states’ sales tax laws to be compliant.
Sales Tax Rates Frequently Asked Questions
1. What is the highest sales tax rate in the USA?
As of March 9th, 2023, the highest state sales tax in the USA is 7.25% in California, and the highest local sales tax in the USA is 5.25% in Alabama. The highest combined sales tax rate in the USA is 9.55% in Louisiana.
2. What is the lowest sales tax rate in the USA?
As of March 9th, 2023, the lowest state sales tax in the USA is 2.9% in Colorado, and the lowest local and combined sales tax in the USA is 1.76% in Alaska.
3. Which state has the highest sales tax rate?
As of March 9th, 2023, California (7.25%) charges the highest state sales tax percentage, whereas Louisiana has the highest combined sales tax rate (9.55%). Increased sales tax rates have a significant impact on the economy.
4. What are sales taxes used for?
Sales taxes are used for financing several public services. It includes improving infrastructure, health, education, and emergency services. The state decides where and how to spend the collected sales tax for the betterment of people. You can learn in detail what sales tax is used for in this blog.
5. Are ecommerce sellers required to collect sales tax?
Yes, ecommerce sellers must collect sales tax for the products they sell in the states that meet physical or economic nexus. They must first check nexus and meet other requirements to collect and remit sales tax.
Need Help with Sales Tax?
Although sales tax is only a part of the complex taxation structure, it isn’t very easy to understand and comply with. It is always better to rely on experts to ensure error-free sales tax compliance.
Book a call with TaxHero and let professionals handle the varying sales tax rates and compliance requirements in any and every state.
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