Sales tax rates remain low nationwide, but some residents still pay a pretty penny
By Kay Bell • Bankrate.com®

Five states don't collect sales tax. There's good news, however, for the taxed residents of the other 45 and the District of Columbia. A recent survey finds that after 18 consecutive years of steady increases, the average rate of combined state and local sales taxes throughout the United States has leveled off.

Sales taxes vary widely and are a major source of operating money for approximately 7,500 taxing jurisdictions such as states, cities, counties, school districts and airports. Some states collect a few percentage points on every sale. Some exempt specific items, such as food. Even in states without a state-imposed levy, cities and counties may still collect a few pennies on most consumer transactions.

And in some cases, the weather determines just how high a sales tax climbs.

Second year of tax rate declines
Vertex Inc., a provider of state and local tax software and research, says the country's 2000 average combined sales tax rate remains below 1998's all-time high of 8.251 percent. In 1999, the combined sales tax rate decreased to 8.231 percent and it went up only slightly last year to 8.235.

The Pennsylvania-based research firm found that the national average sales tax rate is 1.556 percent for cities, 1.551 percent for counties and 5.128 percent for states.

"After nearly two decades of steady growth, it appears the combined average sales tax rate has finally peaked," says Bruce Pierce, the company's chief taxation officer. "The strength of the economy and healthy state and local budgets during this time period appear to be the primary reasons for the leveling effect on the average combined rate figure."

The good economy has allowed Alaska, Delaware, Montana, New Hampshire and Oregon to keep their states sales tax free.

Not all are so lucky
But a state's good fortune is not necessarily good tax news for all jurisdictions within its borders. While Wrangell, Alaska, residents pay no state sales tax, Vertex says they pay the highest city-level sales tax -- 7 percent -- in the country.

Of the states that do collect sales tax, the 7 percent paid by Mississippi and Rhode Island residents is the highest. Six Louisiana parishes and two counties in Alaska impose the nation's highest county-level sales tax at 5 percent. Inhabitants of Arab in Cullman County, Ala., pay the highest combined sales tax rate in the country -- 11 percent .

And don't go shopping in the Alaska communities of Seldovia and Whittier during the summer. If you do, you'll pay more than you would have if you'd braved the Alaskan winter to purchase goods.

Seldovia's sales tax rate from April 1 through Sept. 30 is 4.5 percent, dropping to 2 percent between Oct. 1 and March 31. Whittier's summer sales tax rate is 3 percent, but when temperatures plummet, it does, too. From October to March, Whittier shoppers pay no sales tax.

-- Posted: May 3, 2001