Saturday, April 13, 2024

Louisiana remains near the top nationally for its combined sales tax rate

by BIZ Magazine

By Victor Skinner | The Center Square contributor

Louisiana remains at the top of the list nationally for the highest combined sales tax rate, according to the nonprofit Tax Foundation.

The foundation’s 2022 midyear report shows that of the 38 states where local sales taxes are collected, Louisiana’s combined rate of state and local taxes is the highest in the country at 9.55%, a fact that has not changed since the foundation’s ranking from earlier this year.

Louisiana’s state tax rate of 4.45% ranks 38th out of the 45 states and District of Columbia that collect statewide taxes, but the Bayou State’s average local sales tax rate of 5.1% pushes it to the top of the combined list for all states.

“Louisiana has held the position of having the highest combined state and average local sales tax rates since July of 2021. While the state-level sales tax rate of 4.45% is relatively low, local level sales tax rates make up the difference and land Louisiana at the top of the list,” said Janelle Fritts, Tax Foundation policy analyst. “Tennessee comes in a very close second, but you can partially explain its high rates because it doesn’t have an income tax.”

Behind Louisiana, Tennessee’s combined rate of 9.547 is second nationally, followed by Arkansas at 9.48%, Washington at 9.29% and Alabama at 9.22%.

The five 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%.

Five states do not collect statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

“On average, US states rely on general sales taxes for about 23% of their state and local tax collections,” Fritts said. “In Louisiana, sales taxes made up almost 40% of collections in FY 2019, which is quite high.”

Fritts noted that sales taxes are generally less economically harmful than income or corporate taxes, but can still become burdensome at high rates and encourage residents to travel elsewhere for some purchases.

“In cities near state borders, high sales taxes can cause some people to shift their purchases — at least the big ones — across state lines,” she said. “Broadening the sales tax base to include services in order to bring down rates would be a difficult battle in Louisiana (state and local tax bases are different), but would do a lot of good for residents.”

New Mexico was the only state to reduce its sales tax rate in 2022, going from 5.125% to 5%. That rate reduction was the first state sales tax cut in five years, since Louisiana cut its rate from 5% to 4.45% in 2018.

“State lawmakers have instead prioritized income tax cuts, which yield more economic benefit, reducing individual or corporate tax rates (or both) in two dozen states in the past two years alone,” according to the Tax Foundation.

In Louisiana, “there are more than just high sales tax rates going on,” Fritts said. “The state has a very complex sales tax landscape — state and local sales tax bases aren’t uniform and there’s no central administration, so sellers have to deal with 64 parishes, each with their own paperwork and collection requirements.”

Voters narrowly rejected a constitutional amendment ballot question in 2021 that would have streamlined Louisiana’s decentralized sales tax system. Lawmakers revived the proposal in the 2022 Regular Session, but the measure never gained final approval.

Last month, a U.S. District Court in Louisiana dismissed a remote online seller’s constitutional challenge to the state’s sales and use tax assessment and collection system, alleging the parish-by-parish requirements of the sales tax laws violate the Commerce Clause by unduly burdening interstate commerce.

The court ultimately ruled that it lacked jurisdiction because the remote seller could pursue the case in state court.

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