The Nevada Legislature unanimously approved a $1.3 billion tax incentive deal this month for Tesla Motors to bring its $5 billion battery Gigafactory to Northern Nevada rather than build in its home state of California. The majority of the break, 56%, comes through a 20-year sales tax abatement.
Many states in recent years have brokered company-specific tax incentive packages or have lowered sales taxes directly to encourage companies to take up residence, with varying results. Lawmakers understand that state and local taxes (SALT) can significantly impact a company’s cash flow, effective tax rate and risk profile, and that these factors in turn influence business location and investment decisions.
How do states compare?
The nonpartisan Tax Foundation released its bi-annual report on state and local sales tax rates in the U.S. The report details developments in states’ treatments of sales taxes and lists combined state and local sales tax rates for each state. Local rates, when combined with the statewide rates, can result in substantially larger tax burdens. The key findings in the report include the following.
• The five states with the highest average combined state and local sales tax rates are Tennessee (9.45 percent), Arkansas (9.24 percent), Louisiana (8.91 percent), Washington (8.88 percent), and Alabama (8.85 percent).
• The five states with the lowest average combined rates are Alaska (1.69 percent), Hawaii (4.35 percent), Wisconsin (5.43 percent), Wyoming (5.49 percent), and Maine (5.50 percent).
• California has the highest states sales tax rate and Colorado the lowest.
• 45 states collect statewide sales taxes.
• 38 states collect local sales taxes.
• Sales tax rates differ by state, but sales tax bases also impact how much revenue is collected from a tax and how the tax effects the economy.
• Differences in sales tax rates do cause consumers to shop across borders or buy products online.