The deadline for filing income tax returns is less than a few weeks away. In addition to income taxes, Americans pay property and general sales taxes as well, which also account for a significant share of taxes paid each year. State and local governments collect more than $1,000 per person each year through sales taxes.
State and regional sales tax rates can cause the total amount Americans pay to vary significantly. In Tennessee, for example, consumers are taxed close to 10 cents on the dollar for retail items and food. The state levies a 7% sales tax on a variety of goods and services, and local sales taxes add an additional 2.5%, on average, to the combined rate. Five states do not levy any sales tax, in four which the typical resident pays no local tax either.
As opposed to income and property taxes, Americans never see their final sales tax bill, and so many may be unaware of the role it plays in the budgets of many state and local governments. While individual income tax collections account for at least 30% of total tax revenue in eight states, sales taxes account for at least 30% of state revenue in 13 states.
In order to balance budgets, states and municipalities must make a decision as to how they will tax their populations. For example, many of the states that levy low income tax rates or none at all tend to have higher property tax rates. Similarly, of the seven states that levy no income tax, all but Alaska rely far more on sales taxes than other states.
> Combined sales tax rate:6.0% (14th lowest)
> State sales tax rate: 6.0% (16th highest)
> Avg. local sales tax rate: N/A
> State and local sales tax collections per capita: $855 (20th lowest)
> State & local property tax collections per capita: $1,320 (25th highest)
> State income tax collections per capita: $794 (20th lowest)
The decision to levy a higher or lower tax is often a matter of intense political debate. The sales tax in particular is widely considered a regressive tax, because lower-income individuals tend to spend a greater share of their total income on necessities compared to more affluent Americans.
By contrast, the income tax, which is assessed in graduated income brackets, is considered relatively progressive. The result is that higher income individuals pay a greater share of their income than those who earn less.
Others argue that sales taxes are ideal because they are levied evenly and avoid the waste from the dazzlingly complex administrative framework necessary to levy income, property, and corporate taxes. Many have argued in favor of eliminating the federal income tax altogether, implementing a single, flat, nationwide sales tax.
Sales taxes can also affect consumer behavior. While a higher tax rate can produce greater revenues for the government, some make the argument that it dissuades state residents and tourists alike from spending money on local businesses. And the opposite may be true as well. For example, thousands of visitors travel each year to New Hampshire, which levies no sales tax, for the sole purpose of buying goods at a discount.
In fact, consumers in states with little or no sales tax tend to spend more each year on food. Each year, the average American spends $2,780 on food and beverages. Residents in all but one of the 10 states with the lowest state and local sales tax rates, on the other hand, spend more than $3,000 on average in off-premise food and beverages.
24/7 Wall St. reviewed tax data on state and local sales tax rates and collections from tax research group the Tax Foundation’s report, Facts & Figures 2016. State and local sales tax rates are as of January 1, 2016. The combined sales tax rate is based on an average local rate, as calculated by the Tax Foundation, combined with the statewide rate. State sales, individual, as well as corporate income tax collections per capita are from 2014. General sales tax rates and per capita collections are from January 1, 2016 and 2014 respectively. Excise tax data, including gasoline tax rates, are also as of January 1, 2016. We also looked at per capita personal consumption data as of 2014 from the Bureau of Economic Analysis (BEA).