The Tax Foundation has released an updated report on sales taxes throughout the states in 2016, indicating where the highest and lowest state and local sales tax rates are across the country.

The report details the combined state and average local sales tax rates for each state and explains how sales taxes fit into a state’s overall tax structure.

Forty-five states and the District of Columbia collect statewide sales taxes, according to the report, and local sales taxes are collected in 38 states. The five states with the highest average combined state and local sales tax rates are Tennessee (9.46 percent), Arkansas (9.30 percent), Louisiana (9.0 percent), Alabama (8.97 percent), and Washington (8.90 percent). The five states with the lowest average combined state and local sales tax rates are Alaska (1.78 percent), Hawaii (4.35 percent), Wisconsin (5.41 percent), Wyoming (5.4 percent), and Maine (5.50 percent).

While sales tax rates differ by state, sales tax bases also affect how much revenue is collected from a tax and how the tax affects the economy, the report noted. The difference in sales tax rates between states can induce consumers to shop across borders or buy products online.

“Sales taxes are just one part of an overall tax structure and should be considered in context,” said Tax Foundation economist Nicole Kaeding. “For example, Washington State has high sales taxes but no income tax, whereas Oregon has no sales tax but high income taxes. While many factors influence business location and investment decisions, sales taxes are something within policymakers' control that can have immediate impacts. This report is all about the rates, but it’s important to keep in mind that rates are only half of the equation. Equally important is the sales tax “base,” or which products and services are subject to the sales tax. This can vary widely by product and by state. As policymakers work to improve their tax codes, both of these elements must be addressed.”

In addition to the combined rates, the study also details the average local sales tax rates levied in 38 states. These local rates, when combined with the statewide rates, can result in substantially larger tax bills. For instance, Alabama has the 38th highest state tax rate at 4.00 percent, but the average local rate tacks on an additional 4.97 percent, resulting in the fourth highest combined rate in the country.

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