John Minassian
John Minassian

Combined Average Sales Tax Rate Rose in 2010 Due to Governments' Budget Shortfalls

Five states have the second highest rate — seven percent — following California's lead.

February 24, 2011
by John Minassian

The news in 2010 was that the combined average sales tax rate hit a record level at the end of year due to the budget deficits being experienced at every level of government.  The rate was 9.64 percent, compared to the previous record of 8.63 percent in 2009. Budget-weary governments turned to new and increased taxes in 2010 to help offset these deficits and in some instances, stave off painful cuts.

The combined sales-and-use tax rate of 9.64 percent, which includes U.S. state, county, local and special purpose tax districts, is the highest level since Vertex began tracking the data in 1982. Vertex recently issued its annual Rate Report detailing the changes in state, county, city and district sales taxes and average rate levels.

As of December 31, 2010:

  • The average state level sales tax rate increased to 5.52 percent, compared to 5.48 percent in 2009.
  • The average county tax rate increased to 1.55 percent, compared to 1.54 percent in 2009.
  • The average city tax rate increased to 1.66 percent, compared to1.65 percent in 2009.

While the average rate reached a record level, the total number of sales-and-use tax rate changes in the U.S. did decrease in 2010. The overwhelming majority (94%) of these changes continue to be new or increased taxes signaling that we continue to experience fallout from the recession. However, the decrease in the total number of changes may be indicative of some level of economic improvement for governments and taxpayers alike.

The number of sales-and-use tax rate changes in the U.S. in 2010 decreased to 555 compared to 707 in 2009. Of the 555 changes, 273 were tax increases, 249 were new taxes and 33 were decreases.

As of December 31, 2010, California remained the state with the highest sales tax rate at 7.25 percent. Five states — Indiana, Mississippi, New Jersey, Rhode Island and Tennessee — have the second highest rate, seven percent. Three states had rate changes during the year:

  • Arizona increased its sales, use and rental rate to 6.6 percent from 5.6 percent.
  • Kansas increased its sales tax rate to 6.3 percent from 5.3 percent.
  • New Mexico increased its rate to 5.125 percent from 5.0 percent.

Looking ahead in 2011, rates are expected to continue to rise, however more modestly then they did in 2010.

Some additional highlights from the report:

  • The highest city sales tax rate is found in Wrangell, Alaska (7.0%).
  • The highest combined sales tax rate of 13.73 percent is found in Tuba City, Coconino County, Arizona.
  • The combined number of new and changed sales-and-use tax rates since 2003 is 5,407, an average of 676 per year.
  • Since 2003 there have been 1,934 new sales-and-use taxes, an average of 242 per year and 3,473 sales-and-use tax changes, an average of 434 per year.
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John Minassian is a financial executive with over 30 years of experience in operational, accounting, finance and tax matters. As chief sales and use tax officer, he writes and speaks on today's tax issues and currently leads the tax research function for Vertex Inc. Minassian's work experience includes positions with E. I. DuPont de Nemours, ICI Americas and AMP, Inc. (now Tyco Electronics).