Sales taxes are the second largest source of state and local tax revenue–after property taxes–and account for 23.6 percent of total U.S. state and local tax collections in fiscal year 2016. According to the Tax Foundation:
- Sales taxes are consumption taxes, which are more economically neutral than taxes on capital and income
- 45 states levy a statewide sales tax and 38 allow localities to collect separate sales taxes
- 4 states levy neither a state nor a local sales tax: Delaware, Montana, New Hampshire, and Oregon
- Washington doesn’t have a corporate or individual income tax but instead levies a gross receipts tax on businesses, which accounts for 46.4 percent of its total tax collections
- Tennessee does not tax wage income and will fully repeal its tax on investment income by 2021 but has the second-highest reliance on sales taxes at 41.5 percent of state and local tax collections
- Louisiana is the third-most reliant state on sales tax revenue, with 41.0 percent of tax collections attributable to sales taxe
- South Dakota does not collect corporate or individual income taxes
- Tax rates and items taxed influence consumer buying patterns
Source: To What Extent Does Your State Rely on Sales Taxes?
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