Retail sales taxes remain a major revenue source for U.S. states and localities, but combined state and local rates vary widely. As of midyear 2026, the highest average combined rates are concentrated in Louisiana, Tennessee, Washington, Arkansas, and Alabama, while five states have no statewide sales tax.
Retail sales taxes account for 32 percent of state tax collections and 13 percent of local tax collections, or 24 percent of combined state and local tax collections. They are generally considered more pro-growth than income taxes because they create fewer economic distortions.
Forty-five states levy a statewide sales tax. Thirty-eight states allow local sales taxes, including Alaska, which has no statewide sales tax but permits local sales taxes. Local sales tax rates can be large enough to rival or exceed statewide rates, meaning a state with a moderate statewide rate can still have a high combined rate.
Highest combined sales tax rates
The five states with the highest average combined state and local sales tax rates are:
| State | Average combined state and local sales tax rate |
|---|---|
| Louisiana | 10.13% |
| Tennessee | 9.61% |
| Washington | 9.57% |
| Arkansas | 9.48% |
| Alabama | 9.46% |
The nationwide population-weighted average combined sales tax rate is 7.53 percent.
The source also states later that Louisiana continues to have the highest combined state and average local sales tax rate at 10.11 percent. This creates a small inconsistency in the article between 10.13 percent and 10.11 percent.
Since January 2026, several states have seen small combined-rate changes because of local sales tax adjustments. Notable combined-rate increases occurred in:
- North Carolina, with a four-place ranking change;
- Georgia;
- Washington;
- California;
- Vermont.
Wyoming was the only state with a reduction in its combined rate, caused by several jurisdictions reducing local option tax rates in February and July.
Statewide sales tax rates
Five states have no statewide sales tax:
- Alaska;
- Delaware;
- Montana;
- New Hampshire;
- Oregon.
Of these, only Alaska allows localities to impose local sales taxes.
California has the highest state-level sales tax rate at 7.25 percent.
Four states tie for the second-highest statewide rate at 7 percent:
- Indiana;
- Mississippi;
- Rhode Island;
- Tennessee.
The lowest non-zero state-level sales tax rate is Colorado at 2.9 percent.
Five states have a 4 percent statewide rate:
- Alabama;
- Georgia;
- Hawaii;
- New York;
- Wyoming.
There was no statewide sales tax rate change between January 2026 and July 2026.
Louisiana was the most recent state to raise its sales tax rate. Its state rate increased from 4.45 percent to 5 percent in January 2025, reversing a prior reduction implemented in July 2018. The increase was part of a broader tax reform package that included:
- a 3 percent flat individual income tax;
- a 5.5 percent corporate income tax;
- full expensing;
- franchise tax repeal.
Before that, South Dakota cut its state sales tax rate in 2023, with the reduction scheduled to sunset in June 2027.
New Mexico lowered its state-level sales tax, a hybrid tax it calls a gross receipts tax, from 5.125 percent to 4.875 percent in July 2022. If gross receipts tax revenue in any single fiscal year from 2026 to 2029 is less than 95 percent of the previous year’s revenue, the state rate will return to 5.125 percent on the following July 1.
Sales tax reductions have been relatively rare in recent years because state lawmakers have more often prioritized income tax cuts.
Local sales tax rates
The five states with the highest average local sales tax rates are:
| State | Average local sales tax rate |
|---|---|
| Alabama | 5.46% |
| Louisiana | 5.13% |
| Colorado | 4.99% |
| Oklahoma | 4.56% |
| New York | 4.54% |
Since January 2026, most local sales tax changes have been minor. North Carolina’s combined rate increased slightly and its ranking changed by four places. Wyoming had a slight decrease and moved up by one place. Apart from North Carolina, no state changed by more than one ranking place despite marginal increases in local tax rates.
Effective January 1, 2026, Illinois eliminated its 1 percent sales tax on food items. However, many local jurisdictions chose to impose their own local food taxes.
In Georgia, the sales tax rate in many counties increased by up to one percentage point because of the Floating Local Option Sales Tax. This optional countywide sales tax may be levied for up to five years to provide property tax relief. Revenue is shared between the levying county and its municipalities.
Some cities in New Jersey are in Urban Enterprise Zones, where qualifying sellers collect sales tax at half the statewide rate, or 3.3125 percent. This appears as a small negative adjustment to the average local rate.
Notes on combined-rate calculations
City, county, and municipal rates vary. Local rates are weighted by population to calculate an average local tax rate.
Three states levy mandatory statewide local add-on sales taxes at the state level. These are included in their state sales tax rate:
- California: 1.25%;
- Utah: 1.25%;
- Virginia: 1%.
The sales taxes in Hawaii, New Mexico, and South Dakota have broad bases that include many business-to-business services.
Special taxes in local resort areas are not counted.
Salem County, New Jersey, is not subject to the statewide sales tax rate and collects a local rate of 3.3125 percent. New Jersey’s local score is represented as a negative.
Sales tax competition between jurisdictions
Sales tax avoidance is most likely where there is a significant rate difference between nearby jurisdictions. Consumers may leave high-tax areas to make major purchases in lower-tax areas, including suburbs or online.
One example cited is Chicago, where evidence suggests consumers make major purchases in surrounding suburbs or online to avoid Chicago’s 10.25 percent sales tax rate.
Businesses may also locate just outside high-sales-tax areas. In New England, even though I-91 runs on the Vermont side of the Connecticut River, more retail establishments choose the New Hampshire side to avoid sales taxes. One study found that per capita sales in border counties in sales-tax-free New Hampshire have tripled since the late 1950s, while per capita sales in border counties in Vermont have remained stagnant.
Delaware previously used its highway welcome sign to remind motorists that Delaware is the “Home of Tax-Free Shopping.”
The practical warning is that state and local governments should be cautious about raising rates too high relative to neighboring jurisdictions. Higher rates may produce less revenue than expected, and in extreme cases may cause revenue losses despite the higher tax rate.
Sales tax bases also matter
Sales tax rates do not show the full burden of a state’s sales tax system. The tax base also matters: what is taxable, what is exempt, and whether business inputs are taxed.
States vary widely. Some exempt groceries, some tax groceries at a reduced rate, and others tax groceries at the same rate as other products. Some states exempt clothing or tax it at a reduced rate.
Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services, but not to intermediate business-to-business transactions in the production chain. The aim is a broad-based tax that applies once to each final product, without taxing the same value multiple times.
Many state sales taxes do not match this ideal.
Hawaii has the broadest sales tax in the United States, but it taxes many products multiple times. By one estimate, Hawaii ultimately taxes 119 percent of the state’s personal income. The national median is much lower, with sales taxes applying to 36 percent of personal income.
Broader tax context
Sales taxes are only one part of a state’s overall tax structure. Tennessee has high sales taxes but no individual income tax. Oregon has no sales tax but levies high income taxes.
For business location and investment decisions, many factors matter. But sales tax policy is directly within policymakers’ control and can have immediate effects.
Methodology
The data use population-weighted averages of local sales taxes as of January 1, 2026, to estimate the average local rate for each state.
Sales Tax Clearinghouse publishes quarterly sales tax data at the state, county, and city levels by ZIP code. These figures are weighted using the most recent Census population figures to show the prevalence of sales tax rates in each state.
This differs from some prior editions, which used population figures available every decade. Because of the updated population weighting, this report is not strictly comparable to most earlier editions, although the differences are described as minor rounding errors.
The Census Bureau reports population data using ZIP Code Tabulation Areas, or ZCTAs, which approximate geographic areas associated with ZIP codes. Some ZIP codes do not have residents, such as postal-only ZIP codes. ZIP codes without corresponding ZCTA population figures are omitted from calculations. The source says these omissions create some inexactitude but do not significantly affect the resulting averages.
Source article: taxfoundation.org
