WASHINGTON — The nonpartisan Tax Foundation released its 2012 midyear report Tuesday, detailing the population-weighted average of local sales taxes in each state.
The five states with the highest average combined sales tax rates are Tennessee with 9.43%, Arizona with 9.12%, Louisiana with 8.86%, Washington with 8.83% and Oklahoma with 8.68%, the six-page report found.
The five states with lowest average combined tax rates are Hawaii with 4.25%, Maine with 5%, Virginia with 5%, Wyoming with 5.18% and Wisconsin with 5.43%. The highest total sales-tax rate in the United States is in Tuba City, Ariz., which has a combined rate of 13.725%.
The report comes as cash-strapped states are seeking various methods to balance budgets, including raising taxes, slashing government jobs and urging Congress to pass a bill that would require consumers to pay an online sales tax.
Retail sales taxes are one of the more transparent ways to collect tax revenues, the report said. However, less known are the 37 states in which governments can collect local sales taxes. Local sales-tax rates can be substantial, the report noted, and as a result, a state with a moderate statewide sales tax could have a very high combined state-local rate compared with other states.
Scott Drenkard, author of the report, cautioned that "sales taxes are just one of an overall structure and should be considered in context." For example, Washington has a high statewide sales tax of 6.5% but no income tax. Oregon has no sales tax but levies a high income tax. "While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts," he wrote.
Despite a 1% reduction in its sales tax rate that took effect last July, California still has the highest state-level rate at 7.25%. Five states tie for the second-highest statewide rate with 7% each: Indiana, Mississippi, New Jersey, Rhode Island and Tennessee.
The lowest non-zero statewide tax rate is in Colorado with a rate of 2.9%. Five states do not have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon.
"Avoidance of sales tax is most likely to occur in areas where there is significant difference between two jurisdictions' sales tax rates," Drenkard wrote. "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." He cited Chicago-area consumers who make major purchases in surrounding suburbs or online to avoid the city's 9.5% sales tax rate.
The tax research group used in-house data as well as information from the Sales Tax Clearinghouse and Census Bureau population data for the report.