Ranking Sales Taxes on the 2022 State Business Tax Climate Index

May 24, 2022 10:50 am Published by Comments Off on Ranking Sales Taxes on the 2022 State Business Tax Climate Index

Today we continue our map series on the 2022 State Business Tax Climate Index with a map showing states’ rankings on the Index’s sales and excise tax component. The sales tax rate and structure can make a state more or less attractive to businesses for two key reasons: (1) some states apply the sales tax to business inputs, which drives up the costs of production, and (2) as sales tax rates increase, consumers may cut back on purchases or move their shopping to lower-tax jurisdictions. The sales tax component accounts for 23.7 percent of each state’s overall Index score.

An ideal sales tax applies to a broad base of final consumer goods and services, with few exemptions, and is levied at a low rate. Broad-based, low-rate tax structures minimize tax-induced economic distortions that can occur when people change their purchasing behavior because of tax differences. In addition, sales tax exemptions narrow the tax base, driving up the sales tax rate on those goods and services that remain subject to the tax or forcing greater reliance on less economically efficient taxes.

It is important to note that a well-structured sales tax applies only to the final consumer at the point of sale. It does not apply to the sale of machinery, raw materials, and other business inputs, as those taxes increase the costs of production and ultimately get passed along to consumers in the form of higher prices. States that avoid taxing business inputs perform better on the Index.

This section of the Index also looks at how states apply their sales taxes to remote sellers. While most states have adopted appropriate safe harbors for small sellers and have a single point of administration for all state and local sales taxes, a few are penalized because they diverge from these practices, imposing substantial compliance costs on out-of-state retailers.

Ranking sales taxes on the State Business Tax Climate Index See 2022 sales tax rankings to see how your state ranks on sales taxes

As shown on the map, the highest-scoring states on the sales tax component of the 2022 Index are those without a state sales tax: New Hampshire, Delaware, Montana, Oregon, and Alaska. (They do not receive perfect scores because each state does impose excise taxes with varying degrees of competitiveness, and Alaska permits local sales taxes.) The states with the next best scores—Wyoming, Wisconsin, Maine, Idaho, Michigan, Virginia, and Massachusetts—have well-structured sales taxes and modest excise tax rates.

States that rank poorly on this component have high sales tax rates, high excise tax rates, complicated sales tax administration, and apply the sales tax to a variety of business inputs while exempting many final consumer purchases. The lowest-scoring states are Alabama, Washington, Louisiana, California, and Tennessee.

To learn more about your state’s score on the sales tax component, click here.

To see whether your state’s sales tax structure has become more or less competitive in recent years, check out the following table.

How Does Your State Rank on Sales Taxes?
Sales Tax Component of the State Business Tax Climate Index (2019–2022)
State2019 Rank2020 Rank2021 Rank2022 RankChange from 2021 to 2022
Alabama505050500
Alaska55550
Arizona404040400
Arkansas454646451
California46454547-2
Colorado37373638-2
Connecticut292625232
Delaware22220
Florida222323212
Georgia35333233-1
Hawaii322928280
Idaho1211990
Illinois343439390
Indiana132020191
Iowa18141415-1
Kansas2738372710
Kentucky191313130
Louisiana484848480
Maine88880
Maryland17191826-8
Massachusetts101212120
Michigan141010100
Minnesota26282729-2
Mississippi36323132-1
Missouri25242425-1
Montana33330
Nebraska111515141
Nevada444444440
New Hampshire11110
New Jersey42424243-1
New Mexico414141410
New York434343421
North Carolina242121201
North Dakota30272930-1
Ohio28313435-1
Oklahoma393938371
Oregon44440
Pennsylvania211717170
Rhode Island232526242
South Carolina33303031-1
South Dakota31353334-1
Tennessee474747461
Texas38363536-1
Utah152222220
Vermont201616160
Virginia9911110
Washington494949490
West Virginia161819181
Wisconsin77770
Wyoming66660
District of Columbia31363437-3

Note: A rank of 1 is best, 50 is worst. All scores are for fiscal years. DC’s score and rank do not affect other states.

Source: Tax Foundation.

Errata: The original post contained incorrect numbers in the ranking table. The post has now been updated to reflect these changes.


Categorised in:

This post was written by prismatax

Comments are closed here.