States get their tax revenue from a variety of different sources. Unlike the federal government, which relies almost solely on income taxes, most states add on property taxes and sales taxes to help finance statewide and local government expenses. The immense popularity of online marketplaces Amazon.com, Inc. (NASDAQ:AMZN) and eBay Inc (NASDAQ:EBAY) show the length to which consumers will go to avoid having to pay sales taxes, as those companies have traditionally been able to avoid having to collect sales tax in most of the jurisdictions they serve. Moreover, the competitive advantage that they’ve gained has helped send brick-and-mortar retailers Best Buy Co., Inc. (NYSE:BBY) and Sears Holdings Corp (NASDAQ:SHLD) into serious difficulty, and countless small businesses suffer from the disadvantage of having to charge their customers sales taxes that those customers could avoid by going to Amazon.com, Inc. (NASDAQ:AMZN), eBay Inc (NASDAQ:EBAY), or other untaxed online retail sources.
Of course, just how big the sales-tax burden is varies greatly not just from state to state but also within states, as local-option sales taxes allow cities and counties to add on their own extra charge on shoppers. Using a combination of figures from the Tax Foundation, including general state sales taxes and average local-option surtaxes, let’s look at the seven states that top the list in imposing the highest sales-tax rates.
7. New York
New York has a relatively low statewide sales tax of 4%, but local taxes more than double that total, bringing the combined average rate up to 8.48%. On a per-person basis, state and local governments collect an average of $1,783 in sales and excise taxes, the sixth highest in the nation, and combined with high rates on income and property taxes, New York ranks as the most burdensome for state and local taxes in the nation.
Arkansas carries a 6% general sales tax rate, with local options adding another 2.61% on average for a combined rate of 8.61%. Yet because spending is lower, total per-person sales and excise tax collections are $1,649, ranking it eighth. But on property taxes, Arkansas ranks among the two cheapest places to live from a tax standpoint, offsetting some of the sales-tax burden.
Oklahoma’s 4.5% statewide sales tax is looks attractive until you tack on 4.17% in local add-on taxes. Nevertheless, spending is extremely low, putting overall per-person sales-tax collections in the lower half of states nationally. With average property taxes in the bottom five in the nation and relatively low income-tax rates as well, Oklahoma’s overall tax burden isn’t very high despite its high sales-tax rates.
With 6.5% statewide taxes and 2.36% in add-ons at the local level, Washington’s overall 8.86% average sales-tax rate helps give the state the highest average collections of sales and excise taxes, at $2,416 per person. Yet the high sales taxes are more understandable when you consider that Washington doesn’t have an income tax at all and boasts relatively little per-person revenue from property taxes as well.