Sales and Use Tax Rates in 2016: How Does Texas Measure Up Against Other States?

Sales and use taxes are one of the most common ways state and local jurisdictions raise revenue. While a common practice, sales and use taxes can also be very complex to understand, especially making the determination of nexus (whether you need to collect and remit tax), taxability (is the transaction subject to sales and use tax) and finally, what local rate should be charged (e.g., based on where the order was taken, shipped from or destination of the product).

In the United States we have seen that:

• 45 states and the District of Columbia collect statewide sales taxes;
• Local sales taxes are collected in 38 states;
• Sales tax rates differ by state, but sales tax bases also impact how much revenue is collected from a tax and how the tax affects the economy;
• Sales tax rate differentials can induce consumers to shop across borders or buy products online;
• Five states do not have statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska and Montana allow localities to charge local sales taxes.

As shown in this chart, California has the highest state-level sales tax rate at 7.5%. Five states tie for the second-highest statewide rate at 7%: Indiana, Mississippi, New Jersey, Rhode Island and Tennessee.

The lowest non-zero, state-level sales tax is in Colorado, which has a rate of 2.9%. Seven states follow with 4% rates: Alabama, Georgia, Hawaii, Louisiana, New York, South Dakota and Wyoming.

According to the chart, Texas’s state rate is 6.25%, ranked the 13th highest. Texas local jurisdictions may impose up to a 2% tax, making Texas combine rate at 8.25%, which is ranked as the 12th highest rate. When looking at this chart, please keep the following in mind, some states do not impose an income tax on individuals, like Texas and Washington.

The Texas Comptroller generates most of its revenue from sales and use taxes, generating 55.9% of the total tax revenue. In contrast, the Texas margin tax generates 9% of the total tax revenue collected by the Comptroller. In conclusion, even though Texas may have high sales and use tax rate, it has a good business environment, low business taxes and no personal income tax.

For questions about this regulation or other state and local tax matters, please contact us.

*The Tax Foundation has put together this chart and published it in an article dated March 9, 2016.