The Tax Foundation released a report last week that compares state and local sales taxes across the nation, ranking states based on both the state sales tax and combined state and local rates.
The research shows that as of Jan. 1, Louisiana’s state sales tax of 4.45% ranks 38th from the top. But when that figure is added to the average local tax rate of 5.10%, the state’s 9.55% combined rate becomes the highest among 50 states and the District of Columbia.
The report comes as Louisiana lawmakers are studying potential changes to the state’s tax structure ahead of the 2023 legislative session. Vance Ginn, chief economist for the Pelican Institute, contends that excessive government spending is one factor driving higher taxes in Louisiana, though he believes personal income taxes are having the biggest impact on the state’s economy.
“We have got to find a way to restrain excessive government spending at the state and local level,” he said. “The sales tax is high in Louisiana … but really the focus should be on the burdensome income tax.”
The Pelican Institute is advocating for a flat income tax that eventually phases to zero.
“That will allow for more job creation and economic growth,” Ginn said.
The Tax Foundation ranks Louisiana 25th nationally for income taxes, 32nd in the nation for corporate income tax, and 23rd for property taxes. Those rankings, combined with other measures, puts the state in 39th place overall in the foundation’s 2023 State Business Tax Climate Index.
The foundation’s most recent report notes that sales tax rates can have a significant impact on where residents make major purchases and where businesses locate, and it cites examples of states that have increased per capita sales by maintaining rates lower than their neighbors.
California has the highest state sales tax rate at 7.25%, followed by four states tied for the second-highest rate, at 7%: Indiana, Mississippi, Rhode Island, and Tennessee.
Five states do not have a state sales tax: Alaska, Delaware, Montana, New Hampshire and Oregon. The lowest rates for states with sales tax include Colorado at 2.9%, followed by Alabama, Georgia, Hawaii, New York and Wyoming, all at 4%.
States with the highest average local sales tax rates include Alabama at 5.25%, Louisiana, Colorado at 4.88%, New York at 4.52%, and Oklahoma at 4.48%.
Behind Louisiana with the highest combined state and local sales tax is Tennessee, Arkansas, Alabama at 9.25% and Oklahoma at 8.98%.
States with the lowest average combined rates are Alaska at 1.76%, Hawaii at 4.44%, Wyoming at 5.36%, Wisconsin at 5.43%, and Maine at 5.5%.