I’ve never considered moving to Delaware, Montana, New Hampshire or Oregon as a way to avoid paying local or state sales taxes, but I see how it can be tempting — especially to retirees looking to save money.
Other than some local resort areas in Montana, those four states don’t have local or state sales taxes, giving residents and visitors plenty of reasons to shop there.
Some states make up for low or zero sales taxes with high income taxes. Oregon has no sales tax but high income taxes, while neighboring Washington state has high sales taxes but no income tax. In theory, it could pay off to live and work in Washington state and buy everything in Oregon.
But which states should you avoid for high sales taxes? The Tax Foundation recently put out a mid-year report of state and local sales tax rates, combining the state and average local sales tax rates for each state.
Highest sales taxes in the Bayou
The full list is in the report, but here’s the top 10 states for combined local and state sales tax rates, followed by the combined rate:
- Louisiana: 9.98%
- Tennessee: 9.45%
- Arkansas: 9.3%
- Alabama: 8.97%
- Washington state: 8.92%
- Oklahoma: 8.85%
- Illinois: 8.65%
- Kansas: 8.61%
- New York: 8.49%
- California: 8.48%
Alaska has the lowest average combined rates at 1.78 percent. It doesn’t have a state sales tax.
State rates
California has the highest state sales tax rate in the country, at 7.5 percent. Five states tie for the second-highest statewide rate of 7 percent: Indiana, Mississippi, New Jersey, Rhode Island and Tennessee.
The lowest non-zero state sales tax rate is 2.9 percent in Colorado. Five follow with 4 percent: Alabama, Georgia, Hawaii, New York and Wyoming.
Going where the deals are
Different state and local sales tax rates can cause some consumers to make major purchases in low-tax areas, such as shopping in suburbs instead of cities, or a neighboring state that doesn’t have a sales tax, the Tax Foundation found.
Some Chicago residents, for example, make major purchases in surrounding suburbs or online to avoid the city’s 10.25 percent sales tax rate.
In New England along I-91, which runs up the Vermont side of the Connecticut River, more stores are along the New Hampshire side of the interstate to avoid sales taxes.
The Tax Foundation’s analysis points to a study showing that per capita sales in border counties in sales-tax free New Hampshire have tripled since the late 1950s, while in border counties in Vermont, sales have remained stagnant.
Delaware brags of not having sales taxes on its highway welcoming signs, calling itself the “Home of Tax-Free Shopping.”
And if you can’t get to Delaware? Shop online.
Even athletes that sign contracts will often take this into consideration. With nine figure deals now more and more common, the difference in playing in a state with a high income tax rate versus one with a low rate can be worth many millions of dollars.
Excellent point. Another reason to move to Florida when I hit the lottery!
What do you think is the reason why California has the highest state sales tax rate?