After bouncing between second and third place for the past several years, Louisiana finally ranks first on a national list—for having the highest average sales tax rate, at 9.55%, in the U.S., according to the Tax Foundation.
Bad list to top: Sales taxes are regressive, disproportionately impacting those on the lower end of the economic spectrum. They can induce consumers to shop across borders or buy products online. And, unlike some other states with high sales tax rates but no state income tax—No. 2-ranked Tennessee, for instance, where the sales tax rate averages 9.547%—Louisiana also taxes earnings.
On the other hand: Louisiana ranks 37th in per capita income taxes, according to the Tax Foundation, paying an average $697 in state and local income taxes. Among Southern states that collect income taxes (Florida and Texas do not), Louisiana is among the lowest, with only taxpayers in Mississippi paying less.
The big picture: The rankings are a reminder that while state lawmakers made some progress this session, passing a package of tax reforms and changes that will go before voters for approval this fall, Louisiana’s system still needs help. Says Robert Travis Scott, president and CEO of the Public Affairs Research Council, ”This report puts us back on the map and not in the best way.”
• The problem isn’t so much the state’s sales tax rate by itself, which is not out of line with those of other states. It’s the local sales tax rates in Louisiana—5.1%, on average— that put us over the top. Some states don’t have tax rates as high as our local rates average, Scott says.
• The Tax Foundation also factors into its rankings temporary sales tax hikes, which lawmakers raise from time to time to plug budget gaps. Even though those temporary increases expire, they get averaged in and can impact the rankings.
More problems: “The way we collect (taxes) is bad,” Scott says. “The number of exemptions is bad. The fact it’s regressive is bad. The way we treat the base. The way local governments are so heavily dependent on it. I could go on and on.”
- There’s also the fact that different parishes tax things differently, which is not so much a problem if you’re buying a pair of shoes. But it gets complicated with certain business taxes, which then end up in court.
- Lawmakers have sought to address a couple of those problems with a constitutional amendment that would streamline sales tax collection in the state and also create a single set of guidelines over time for what is taxable and what is not. But voters still need to sign off on those changes this fall.
How do other states stack up? Arkansas (9.48%), Washington (9.29%), and Alabama (9.22%), rounded out the top five after Louisiana and Tennessee, with the highest combined state and local sales tax rates. The five states that rank at the bottom—a good thing—are Alaska (1.76%), Hawaii (4.44%), Wyoming (5.39%), Wisconsin (5.43%), and Maine (5.5%).