NCPA - National Center for Policy Analysis

Sales Tax Rates in Major U.S. Cities

April 19, 2012

Sales taxes in the United States are levied not only by state governments but also by city, county, Native American reservations and special district governments.  In many cases these local sales taxes can have a profound impact on the total rate that consumers see at the check-out register, say Scott Drenkard, Alex Raut and Kevin Duncan of the Tax Foundation.

The Tax Foundation recently compiled a detailed analysis of the United States' major tax jurisdictions, allowing for cross-regional comparison of taxes levied onto citizens' purchases.

  • Birmingham and Montgomery, both in Alabama, have the highest combined state and local sales tax rate among major U.S. cities, at 10 percent.
  • They are followed by Chicago, Illinois; Glendale, Arizona; and Seattle, Washington -- each with rates of 9.5 percent.
  • Meanwhile, Portland, Oregon, and Anchorage, Alaska, have neither a state nor local sales tax.
  • Five local jurisdictions in Virginia (Arlington, Chesapeake, Norfolk, Richmond and Virginia Beach) are also relatively low on the list, levying just a 5 percent statewide sales tax.

Two important caveats exist for such a comparison.  First, it cannot be held as a comprehensive assessment of a state's total tax burden that it imposes.  Many states with high sales taxes have no income tax or property tax, and vice versa.

Second, the offered explanation of sales tax rates says nothing of the tax base to which such rates are applied.  Every jurisdiction has its own idiosyncrasies in how its taxes are applied: some tax groceries while others do not, some tax clothing while others do so at a reduced rate, etc.  Simply explaining rates does little to comprehensively assess the aggregate tax burden.

An important takeaway from this comparison is that it shows why sales tax competition exists on a large scale.  Consumers often migrate from high-rate to low-rate localities to take advantage of low rates.

  • For example, strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago's high sales tax rates.
  • At the statewide level, businesses sometimes locate just outside the borders of high sales tax areas to avoid being subjected to their rates.
  • Similarly, the state of Delaware actually uses its state border welcome sign to remind motorists that Delaware is the "Home of Tax-Free Shopping."

Source: Scott Drenkard, Alex Raut and Kevin Duncan, "Sales Tax Rates in Major U.S. Cities," Tax Foundation, April 11, 2012.

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