The Best and Worst State Sales Tax Rates

State sales taxes vary with each state. Sales taxes (consumption taxes) are usually regressive, meaning that lower income individuals bear much of the burden of paying the tax than do higher income individuals. This is mainly because sales tax is related to income rather than amount spent. Each US state and the US territories have their own sales tax rate. Some have better rates than others. However, “better ” or “best” is relative to population, cost of living or average income, and the size of the state or territory. Surprisingly, some smaller states have a higher sales tax rate. Let’s examine.

First, the states with the highest sales tax rate are California, which is at 7.25% and New Jersey, Indiana, Tennessee, Mississippi, and Rhode Island, which are all at 7.00%. California has the highest population (36,756,666) out of this set. Its average salary is $46,000 and its CPI was 224 for 2008. Though California’s sales tax rate is the highest, the average salary and CPI along with the population justifies the rate. Therefore, California would not be considered to have the worst sales tax rate even though it is the highest.

Moreover, Rhode Island has the lowest population (1,050,788) out of this set of high sales tax states. Its rate is at 7.00%. The average annual salary in Rhode Island is roughly $31,000. Rhode Island’s Consumer Price Index (CPI) was 181.8 in 2008. These facts would make this state’s sales tax rate one of the worst.  However, all clothing in Rhode Island is exempt from sales tax.

Minnesota has the next lowest sales tax rate at 6.875%. Nevada follows at 6.850% and Washington at 6.50%. Of these three states Washington has the highest population. Their CPI’s and average salaries are comparable. Minnesota has an advantage though because there is no sales tax on certain foods and on all clothing.

Texas, Illinois, and Massachusetts come in next at 6.250%. The population of Texas is more than double that of Illinois and more than four times that of Massachusetts. Its average income is around $39,000. However, Texas is one of a few states that offer a tax free week or weekend. Those states would be the “better” ones during that week or weekend. Massachusetts has a sales tax exemption on clothing that is less than $175.

Thirteen of the remaining states have a sales tax rate of 6.0%. These include such states as Florida, Pennsylvania, Michigan, Iowa, and South Carolina. Florida has the fourth largest population in the country, yet it has a sales tax rate of 6.0%, which is far less than the 7.25% of California. Pennsylvania is one of those that have no sales tax on all clothing.

While lower sales tax rates may be ideal, no sales tax rate is by far the best. Five states have this benefit. They are Oregon, New Hampshire, Montana, Delaware, and Alaska. These states could definitely be considered as the ones with the best sales tax rate. They have NO SALES TAX.