NASHVILLE - No wonder that both candidates for governor say they won't raise sales taxes.
A new report by the non-partisan Tax Foundation confirms what most Tennesseans already suspected at the checkout counter: the Volunteer State has the highest combined state and average local sales rate in the country - although some cities elsewhere have higher combined rates.
Local sales taxes in Tennessee - those levied by cities and counties - are capped at 2.75 percent, and are 2.25 percent in Memphis and Shelby County. But statewide, local sales taxes in Tennessee average 2.44. Combined with the 7 percent state sales tax, Tennessee's combined state and local average rate is 9.44 percent - the nation's highest, according to the Tax Foundation http://www.taxfoundation.org/ a Washington nonprofit that monitors federal, state and local fiscal policy.
After Tennessee, the Tax Foundation reports states with the highest combined state and average local sales tax rates are California (9.08 percent), Arizona (9.01), Louisiana (8.69), Washington (8.61) New York (8.52), Oklahoma (8.33), Illinois (8.22), Arkansas (8.1) and Alabama (8.03).
Memphis and Nashville are tied with San Jose, Calif., for the 13th highest combined sales tax rates - 9.25 percent - among the nation's major metropolitan areas, the Tax Foundation also reports. Both the state and metro area reports are available on the website above.
Birmingham and Montgomery, Ala., share the dubious distinction of having the highest combined sales tax rate - 10 percent - in the nation.
Unlike Tennessee, Alabama's city and county sales taxes are stacked on each other. So in Birmingham, consumers pay 4 percent state sales tax, 4 percent city and 2 percent county sales tax, for a total 10 percent. In Montgomery, it's 4 percent to the state, 3.5 percent to the city and 2.5 percent to the county.
Ouch! At least in Tennessee, you pay a city or county sales tax depending on where the sale occurs - but not both.
On the other hand, Tennessee is among 17 states that tax food to varying degrees, which progressive tax-policy advocates decry. Tennessee discounts the sales tax on food in grocery stores (not restaurants) by 1.5 percentage points; that is, the state sales tax applied to grocery food is 5.5 percent rather than the full 7 percent. Local sales taxes are added on top of the 5.5 percent.
According to the Federation of Tax Administrators http://www.taxadmin.org/ Tennessee is one of 10 states that provide some sales tax discounts - either state or local or both - for food purchases. Two others - Alabama and Mississippi - apply their full sales tax rates to food. Five state - Hawaii, Idaho, Kansas, Oklahoma and Wyoming - tax food but provide rebates and/or tax credits to low-income households. http://www.taxadmin.org/fta/rate/sales.pdf
Tennessee's sales taxes are high, of course, because we rely on them to fund government more than most states do. Seven states don't have individual income taxes at all: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Two - New Hampshire and Tennessee - have a limited income tax that taxes only unearned income such as some interest and dividends, according to the FTA http://www.legis.state.wi.us/lfb/Informationalpapers/4_individual%20income%20tax%20provisions%20in%20the%20states.pdf
Surprisingly, given the current anti-tax political environment, three states have increased their sales or income tax rates this year, according to the Tax Foundation.
• Arizona voters approved - by a 64 to 36 percent margin - increasing their sales tax from 5.6 percent to 6.6 percent.
• The Kansas legislature increased its sales tax rate from 5.3% to 6.3%.
• Oregon voters approved - by a 54 to 46 percent margin - a state income tax increase retroactive to Jan. 1, 2009.
Meanwhile, neighboring Arkansas enacted another decrease in its sales tax on grocery food, now subject to 2 percent in state sales tax rather than 3 percent. Local sales taxes may be added.