The Best and Worst States for Sales Taxes

The States with the Highest and Lowest Sales Tax

Image by Nusha Ashjaee © The Balance 2021

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

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 if you don't want to shell out a fair bit of extra money every time you approach a cash register. These locations are the best—and worst—for sales taxes as of 2020.

States With the Lowest Sales Taxes

The obvious frontrunners are those states with no sales taxes at all at the state level, but there were only five of them as of 2020: Delaware, Montana, New Hampshire, Alaska, and Oregon. And Alaska falls into something of a gray area. It doesn't have a state sales tax, but Alaska's localities do charge a tax, and the average rate statewide is 1.76%.

Rounding out the top 15 states with the lowest sales tax rates—all under 5%—are:

  • Colorado at 2.9%
  • Alabama, Georgia, Hawaii, New York, and Wyoming, all at 4%
  • Missouri at 4.225%
  • South Dakota and Oklahoma at 4.5%
  • North Carolina at 4.75%

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 areas of Massachusetts that aren't too far from tax-free New Hampshire.

California has the dubious honor of having the highest statewide sales tax rate at 7.25%. It's followed by:

  • Indiana, Mississippi, Rhode Island, and Tennessee at 7%
  • Minnesota at 6.875%
  • Nevada at 6.85%
  • New Jersey at 6.625%
  • Washington, Arkansas, and Kansas at 6.5%

What Purchases Are 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 some 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 had the lowest excise tax on beer in the country at just $0.02 per gallon as of 2020.

When Local Taxes Are Added In 

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

The combined state and local rates reach a whopping 9.53% 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%, Louisiana at 9.52%, Alabama at 9.22%, and Washington at 9.21%, all as of 2020.

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

Offsets by Other Taxes

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. Your earned income is tax free if you live there. Conversely, you'll pay dearly in property taxes if you live in New Hampshire even though the state is sales-tax-free.

Frequently Asked Questions (FAQs)

What do sales taxes pay for?

Sales taxes are used to pay for a variety of state and local government services, from roads and municipal sewer repairs to schools and fire departments. In many cases, states will give voters an opportunity to vote for or against sales taxes for specific purposes.

What sales taxes are deductible?

The IRS permits you to deduct sales taxes, along with other state and local taxes, from your federal tax return. Together, you can deduct all state and local sales, income, and property taxes—up to $5,000 for single filers and $10,000 for married filers.