Sales tax plays a vital role in generating revenue for many state and local governments. Unlike income taxes that are based on an individual’s or business’s earnings, sales tax is collected from consumers when they make purchases, adding a percentage of the item’s price to the total cost.
Sales tax is regulated by state and local authorities, not by the federal government. There are five states that do not have a statewide sales tax, they are sometimes referred to as the “sales-tax-free states”:
- Delaware (DE)
- New Hampshire (NH)
- Montana (MT)
- Oregon (OR)
- Alaska (AK)
Among these states, the first four also do not have local sales tax, while Alaska allows local governments to impose sales taxes.
The Tax Foundation has compiled the most recent data on sales tax rates. When we refer to “local tax,” it means the average tax rate within the state. This is because sales tax rates can vary between different jurisdictions and types of goods.
Sales Tax Rankings by State
In the case of New Jersey, there’s an interesting situation where the local sales tax appears to be in the negative. However, this doesn’t mean you get a tax refund. Instead, it’s because Salem County imposes a lower sales tax rate of 3.3125%, which is below the state’s set rate of 6.630%. This creates the appearance of a negative local sales tax rate.
The reason behind this unique situation is that Salem County borders the sales-tax-free state of Delaware. In an effort to discourage people from traveling to Delaware for shopping, Salem County has reduced its sales tax rate, apparently with the approval of the state government.
Sales Tax Map of the USA
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