The Best and Worst States for Sales Taxes

Image shows a map of the united states. There is a color-coded ledger in the lower right-hand corner, where green means no sales tax, yellow means low sales tax, and red means high sales tax. Title reads: "The states with the highest and lowest sales tax." Map shows NH, RI, DE, MT, and OR in green, AK in yellow, and IN, TN, MS, and CA in red.

Image by Nusha Ashjaee © The Balance 2020

Sales tax makes everything you buy a little more expensive, and it’s not just state sales taxes you have to worry about. Some counties and cities tack on their own taxes in addition to the state's, making the bill for certain merchandise even higher. 

If you don't want to shell out a lot of extra money every time you approach a cash register, you'll have to shop in states that either don't have a sale tax, have a very low tax rate, or shop during a sales tax holiday. These locations are the best—and worst—for sales taxes.

States With the Lowest Sales Taxes

The obvious front-runners are the states with no sales taxes at all at the state level, but there were only five of them in 2020: Delaware, Montana, New Hampshire, Alaska, and Oregon.

And Alaska falls into something of a gray area. The state doesn't have a sales tax but Alaska's localities do charge a tax and the average rate statewide is 1.76 percent. This still puts the state in the top tier with no or very low sales taxes.

Rounding out the top 15 states with the lowest sales tax rates—all under 5 percent—are Colorado at 2.9 percent and Alabama, Georgia, Hawaii, New York, and Wyoming, all at 4 percent. Missouri taxes at 4.225 percent, South Dakota and Oklahoma at 4.5 percent, and North Carolina at 4.75 percent.

States With the Highest Sales Taxes

At the other end of the spectrum are states with very high state sales tax rates. In some cases, these rates are high enough that shoppers drive across state lines to visit lower-tax or tax-free states when they want to make major purchases. This frequently occurs in Massachusetts, which isn't too far from tax-free New Hampshire.

California has the dubious honor of having the highest statewide sales tax rate at 7.25 percent. Indiana, Mississippi, Rhode Island, and Tennessee all have a 7 percent sales tax. They tie for second place. Minnesota trails right behind at 6.875 percent, followed by Nevada at 6.85 percent, New Jersey at 6.625 percent, and Washington, Arkansas, and Kansas at 6.5 percent.

What's Taxed? 

Most of these states with low sales tax rates exempt food items and many other necessary purchases as well, such as prescription drugs and clothing. But many states have separate, higher taxes for certain purchases like tobacco, alcoholic beverages and gasoline.

New Hampshire will get you if you purchase tobacco products there—a pack of 20 cigarettes will cost you an extra $1.78 as of 2020, and a pack of 25 cigarettes has a tax rate of $2.23 per package. You can take heart if you live in Wyoming, however. The state has the lowest beer tax in the country at half a cent per liter.

When Local Taxes Are Added In 

Thirty-eight states allow local-level sales taxes. Among those that do, Hawaii, Wisconsin, Wyoming, and Maine trail behind Alaska as having the lowest combined rates. Hawaii logs in at 4.44 percent, Wisconsin at 5.46 percent, Wyoming at 5.34 percent, and Maine at 5.50 percent.

The combined state and local rates reach a whopping 9.53 percent in some areas of Tennessee—the highest combined rate in the country.

Also among the five highest combined state and local taxes are Arkansas at 9.47 percent, Louisiana at 9.52 percent, Alabama at 9.22 percent, and Washington at 9.21 percent, all as of 2020.

Residents of Colorado Springs, Colorado voted to increase their city sales tax to 3.12 percent effective 2016 to help pay for highway and road maintenance, but Colorado still remains on the short list of low-taxed states overall. 

It's a Balancing Act

Of course, sales taxes are only one of several ways that state governments can reach into your pocket for the cash that keeps them up and running. Some states take but then they give back again. They pull much of their revenues from a single tax source and spare residents in other areas.

For example, Tennessee's significant combined state and local sales tax rate is offset by the fact that the state only imposes income tax on dividends and investment income. If you live here, your earned income is tax free. Conversely, although New Hampshire might be sales-tax-free, you'll pay dearly in property taxes if you live there. 

Article Sources

  1. Tax Foundation. "State and Local Sales Tax Rates, 2020." Accessed June 16, 2020.

  2. Tax Foundation. "Sales Taxes on Soda, Candy, and Other Groceries, 2018." Accessed June 16, 2020.

  3. Tax Policy Center. "How Do State and Local Taxes Work?" Accessed June 16, 2020.

  4. New Hampshire Department of Revenue Administration. "Frequently Asked Questions - Tobacco Tax." Accessed June 16, 2020.

  5. Wyoming Department of Revenue Liquor Division. "Title 12 - Alcoholic Beverages," Page 19. Accessed June 16, 2020.

  6. Tax Foundation. "How High are Beer Taxes in Your State?" Accessed June 16, 2020.

  7. City of Colorado Springs. "2016 Budget in Brief," Page 14. Accessed June 16, 2020.

  8. Tennessee Department of Revenue. "Hall Income Tax." Accessed June 16, 2020.

  9. New Hampshire Department of Revenue Administration. "Completed Public Tax Rates 2019." Accessed June 16, 2020.