The history of the sales tax started back in the nineteenth century in the northeast. The first sales tax dates back to 1821, and was introduced in Pennsylvania. The tax was a mercantile license tax. Although Pennsylvania did not issue a broad sales tax, this is the first recorded tax on goods or services. Following Pennsylvania’s tax, Kentucky issued a tax entirely on retailers in 1930. The tax was progressive, but was replaced by a three percent flat rate tax in 1934 and finally eliminated in 1936. The first modern sales tax was passed by Mississippi, and twenty-four states followed suit. The most recent state to pass a sales tax was Vermont in 1969.
Sales Tax Today
Since each state issues its own sales tax (if it issues a sales tax), sales taxes differ state by state. Some states have lower sales taxes, and other states have higher sales taxes. The state with the highest sales taxes include:
- New Jersey
- Rhode Island
The tax rates in each of these states are as follows:
- The tax rate in Indiana is 7%;
- The tax rate in Mississippi is 7%;
- The tax rate in New Jersey is 7%;
- The tax rate in Tennessee is 7%;
- The tax rate in Minnesota is 6.875%;
- The tax rate in Nevada is 6.85%;
- The tax rate in Arizona is 6.6%;
- The tax rate in Washington is 6.5%;
- The tax rate in Kansas is 6.3%;
- The tax rate in California is 6.25%; and
- The tax rate in Illinois is 6.25%.
Within states, local communities can issue sales taxes as well if the state has granted them the authority to do so. Several of the states with the highest sales taxes also have local communities with high sales taxes. In Illinois, for example, the average local sales tax rate is 1.95% and thus the combined rate is 8.20%. However, some of the local communities in Illinois might issue tax rates as high as 5.25%, and Chicago has a sales tax rate of 9.6%.
In Kansas, the average local sales tax rate is 1.96% and thus the combined rate is 8.26%. Furthermore, unlike other states, Kansas taxes all purchase at the same rate. In Tennessee, the average local sales tax rate is 2.45%, and thus the combined rate is 9.45%. Although Tennessee has an extremely high local sales tax rate, it does offer a reduced sales tax on certain goods such as groceries. Moreover, Kansas does not charge any state income tax.
If you are looking to save money on sales tax, you might want to avoid the above states!