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Rent prices aren't the only thing people consider when deciding where to live. Taxes can play a huge role in where folks settle down. In fact, nearly 600,000 people relocated for tax purposes in 2016. Sales taxes generally vary among municipalities. There are 12 states that don't have local sales taxes. Meanwhile, five states — Alaska, Montana, Delaware, Oregon, and New Hampshire — have no state sales taxes at all. Looking for a new home in the near future? If cost-of-living considerations are important to you, we've got you covered. Here are five states with the highest combined state and local sales taxes.
With a combined local and state sales tax rate of approximately 9.14%, Alabama ranks fifth on our list. This type of taxing is distinct from income tax. Retail sales taxes are generally more transparent since they're clearly printed on receipts. Meanwhile, income taxes require an annual filing and marginal tax rates can vary depending on your income. Even a job change can lead to major confusion when it comes to tax time. Sales taxes, on the other hand, require no action on the part of the individual. They're automatically added to your purchases.
While Alabama does have unusually high sales taxes, it actually collects fewer taxes per capita than any other state. The state charges no sales taxes on some goods and services. For example, medical services, prescription drugs, and food stamp purchases are all exempt from Alabama's sales taxes. Additionally, this beautiful state has some stunning natural attractions, plus gasoline is exempt from Alabama's sales tax, so you won't even have to pay extra to drive to visit them.
If you're looking for tax-friendly states, Washington might pop up on your radar. After all, it's one of seven states without income taxes, which proponents say attracts young professionals to the area. Income tax isn't the only thing to consider however. Washington state actually has some of the highest sales taxes in the country with certain municipalities charging rates above 10%. Since 2019, the average combined state and local sales taxes for Washington is 9.17%. These high rates are particularly evident in gas prices. Drivers here pay a tax of 49.4 cents per gallon — giving Washington one of the highest gas taxes in America.
Despite its high sales taxes, Washington does offer quite a few exemptions such as food ingredients and prescription drugs. Nonresidents can even get sales tax exemptions on purchases of large items such as watercraft or trailers.
The combined (state and local) sales tax rates for Louisiana is approximately 9.45%. This gives it the third-highest sales taxes in the country. Although the rate seems high, it actually indicates a slight rate reduction. Prior to 2018, Louisiana had the highest sales tax rates in the United States. Officials even admitted that Louisiana's tax structure was one of the country's worst.
In 2018, the state sales tax rate was lowered from five percent to 4.45%. Despite this, visitors should know that Louisiana charges sales taxes on hotel rooms, amusement park tickets, and parking lot fees. For dedicated travelers, though, this may not matter. After all, Louisiana offers a diverse range of cultural experiences, historical landmarks, and exotic cuisines to make up for the extra charges.
Arkansas is nearly tied with Tennessee for the state with the highest sales taxes with a rate of 9.465%. The spike in rates began in 2013 when Arkansas residents voted to increase the state sales tax by half a percentage point in order to raise money for highway and general road maintenance. Formerly, Arkansas ranked as the state with the sixth-highest sales tax, but don't let the high sales taxes keep you away from checking out this beautiful state.
Tennessee beat Arkansas by less than a percentage point with a combined sales tax rate of 9.469%. Unlike Arkansas, however, Tennessee has no income tax. With this factored in, residents might consider Tennessee's sales taxes just slightly more reasonable than Arkansas'. In fact, without income taxes, Tennessee gets approximately 60% of its state funding from sales taxes alone.
However, critics of these high rates have noted that sales taxes are regressive, which means that they have a higher impact on low-income families. This has led Tennessee to be listed as number six on the "Terrible 10" list, a ranking compiled by a Washington, D.C. think-tank.
In order to combat its reputation for high taxes, Tennessee lawmakers are attempting to reduce taxes on groceries. Food items now have a special sales tax rate of just five percent. Special low rates also apply to clothing, prepared food, and medication — all of which are taxed at seven percent each. Meanwhile, transportation, medical, and janitorial services are also exempt from Tennessee's state sales taxes.