Although President Barack Obama's push to raise federal income taxes for the wealthy gets lots of attention, the continuing upward creep in the sales tax rates imposed by state and local governments has gotten less notice.
But Vertex, a company that calculates sales tax for Internet sellers, reports that the average general sales tax rate nationwide reached 8.629% at the end of 2009, the highest since the Berwyn, Pa., company started tracking data in 1982. That was up a nickel on a taxable $100 purchase from a year earlier and up nearly 40 cents for the decade.
State-level sales taxes generally account for only about two-thirds of the total sales tax bill. The rest comes from levies assessed by counties, cities and towns, Indian tribes and special-purpose tax districts funding mass transit, urban renewal and even sports stadiums. Among lower-level jurisdictions, Vertex counted 649 new or increased sales tax rates during 2009 and just 192 reductions.
The result is a range of combined sales tax rates across the country. At the bottom: 0%, found in all of Delaware and New Hampshire, and most of Montana, Oregon and Alaska. The country's highest rate now is 12%, in the tiny portion of tiny Arab, Ala., (population 7,500) sticking into Cullman County. The rest of the northern Alabama town, in Marshall County, pays just 8%.
U.S. locales with the highest sales taxes
Right now, Chicago has the highest big-city rate, 10.3%. But in a move forced by Cook County lawmakers, the rate is scheduled to drop July 1 to 9.8%, matching that of Los Angeles. In New York City, the total bite is 8.9%. Other high big-city rates include San Francisco and Seattle (both 9.5%), New Orleans (9%), Houston, Dallas and Charlotte (8.3%), Las Vegas (8.1%), and Philadelphia and Atlanta (8%).
In Arizona, voters will go to the polls May 18 to pass judgment on a 1-percentage-point rise in the state's 5.6% rate for three years. If approved, the rate in Phoenix would jump from 8.3% to 9.3%.
Some of the highest sales taxes in the nation are designed to grab dollars from tourists. New Orleans International Airport has a special 10.8% rate, while the Snowmass Village ski resort in Colorado levies a 10.4% tax. (Many locales also impose special higher taxes on services purchased by tourists, such as rental cars and hotel rooms.)
Nationally, sales taxes in 2008 generated more revenue for state and local governments -- about $450 billion, a recent Government Accountability Office report suggests -- than did property taxes ($411 billion) or personal income taxes ($310 billion).
At the federal level and in some states, the income tax is progressive, with higher rates imposed on upper-income taxpayers. But rich and poor pay the same sales tax rate. In many states, however, there's no sales tax on food or prescription drugs.
The combined local sales rate is what in-person customers are charged by local merchants. Through a parallel system called the use tax, it's also what residents in a given jurisdiction are supposed to pay on purchases over the Internet from out-of-state sellers, but such payments are widely flouted. Congress has declined to pass legislation that would require large Internet-only sellers such as Amazon.com and Overstock.com to collect sales taxes for all states. (Currently, they have to do so only for states in which they have a physical presence.)Wal-Mart, Dell, Office Depot and Staples, collect sales taxes from Internet buyers. Some states, with New York in the lead, have adopted new "Amazon" laws designed to force the Web giant and others to collect their taxes. More such laws are likely this year.
West Virginia adopted the country's first sales tax in 1921. Periodically, the federal government has considered a national sales tax, but such proposals have never gotten traction.
In Canada, which has a national 5% sales tax, all but two of the provinces (Alberta and Saskatchewan) have combined sales taxes of 12% or higher. The highest is Prince Edward Island's 15.5%.
This article was reported by William P. Barrett for Forbes.com.