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Sales Taxes Hit Record High - Which States Take the Biggest Bite?

As states seek more income, sales taxes reach a record highIf you feel like the cost of everything is more expensive at the register these days, it's not your imagination. Even when the cost of goods and services has remained relatively flat, the associated sales and use taxes have continued to climb. Data released recently from Vertex, a privately-held company based in Berwyn, Pa., indicates that although the rates are slowing, they're still increasing: The average combined U.S. sales and use tax rate hit a new record 9.64% last year.

Three states had a rate increase: Arizona, Kansas and New Mexico. Even with those increases, those states still lagged behind the states at the top. California reported the highest sales tax rate at a whopping 7.25%. Indiana, Mississippi, New Jersey, Rhode Island and Tennessee all tied for the second highest sales tax rates at 7.0%.Individually, Wrangell, Alaska, has the highest city sales tax rate in the nation at 7.0%. Other Alaskan cities tie for second place: Kodiak, Hoonah, Dillingham, Cordova, Buckland, Bethel, Petersburg, Kotzebue and Thorne Bay have the second highest city sales tax rate of 6.0%. Luckily for folks in Alaska, there's not a separate sales tax imposed on top of that. It's one of a handful of states (Delaware, Montana, New Hampshire and Oregon are the others) that don't impose a state sales tax on most goods and services.

If you combine city and state sales taxes, Chicago and Los Angeles come out on top. Shoppers in those cities pay 9.75% in tax. Not far behind are San Francisco and Seattle with combined city and state sales tax rates of 9.5%; Phoenix at 9.3%; New Orleans at 9.0%; New York at 8.875%; Dallas, Houston and Charlotte at 8.25%; Las Vegas at 8.1%; and Philadelphia and parts of Atlanta at 8.0%.

Of course, it's not just big cities paying out big taxes. Tuba City (including the surrounding areas that are in the To'Nanees'Dizi Local Government), located in Coconino County, Ariz., has the highest combined total sales tax rate with an amazing 13.7250%.

Sales taxes tend to be a quick -- and administratively easy -- way for states, cities and districts to collect revenue. It's not surprising, then, that since 2003, there have been 1,934 new sales and use taxes, an average of 242 per year. Taken together with changes, the combined number of new and changed sales and use tax rates since 2003 is 5,407, an average of 676 per year.

Proponents of using sales tax as a revenue raiser argue that it's a fair tax since it's a flat rate on purchases -- you pay tax on what you buy. However, opponents argue that sales tax is regressive since those at the lower end of the earnings scale pay a larger percentage of their income in sales tax than those at the top, even for necessities.

Fair or not, states, cities and districts will likely continue to use the sales tax -- perhaps even on online sales -- as a way to plug holes in the budget. The bigger question, then, isn't whether those rates will continue to rise but how high they'll go.

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