PROJECTState and Local Backgrounders


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  • General Sales Taxes and Gross Receipts Taxes

    State and Local Backgrounders Homepage

    General sales taxes are taxes on goods and services purchased by consumers. The tax is a calculated as a percentage of the retail price and added to the final purchase price paid by the consumer. General sales taxes are separate from selective sales taxes on specific purchases such as alcohol, motor fuel, and tobacco

    The Census Bureau includes revenue from gross receipts taxes in its revenue totals for either general sales taxes or "other selective sales taxes." A gross receipts tax is also a tax on sales, but the tax is paid by the seller (not the consumer) and is levied on each business's total sales over a given time period (not on an individual retail transaction).

    How much revenue do state and local governments raise from general sales taxes and gross receipts taxes?

    State and local governments collected a combined $434 billion in revenue from general sales taxes and gross receipts taxes, or 13 percent of general revenue, in 2019. General sales taxes provided less revenue than property taxes and roughly the same amount as individual income taxes. Additionally, state and local governments collected $207 billion from selective sales taxes, or 6 percent of general revenue, in 2019.

    Share of total state and local general revenues bar graph

    States rely on general sales tax revenue more than local governments. State governments collected $334 billion (15 percent of state general revenue) from general sales taxes in 2019, while local governments collected $100 billion (5 percent of local general revenue). By comparison, states collected $167 billion in combined selective sales taxes (8 percent) and local governments collected $38 billion (2 percent).

    State and Local Sales Tax Revenue, 2019

     

    General sales tax revenue
     ($ billions)

    Percentage of general revenue

    Selective sales 
    tax revenue
     ($ billions)

    Percentage of general revenue

    States and local government

    $434

    13%

    $207

    6%

    States

    $334

    15%

    $169

    8%

    Local governments

    $100

    5%

    $38

    2%

     
    (For more on selective sales taxes, please see our pages on alcohol taxes, cigarette and vaping taxes, and motor fuel taxes.)

    Nevada and Washington relied on general sales tax revenue more than any other state in 2019 as general sales taxes accounted for roughly a quarter of each state’s combined state and local general revenues. Arizona, Hawaii, and South Dakota also collected 20 percent or more of combined state and local general revenues from general sales taxes in 2019. Among the states with a statewide general sales tax, Vermont (6 percent) relied the least on general sales tax revenue in 2018. In total, 12 states with a statewide general sales tax collected less than 10 percent of state and local general revenue from the tax that year. 

    Share of state and local general revenues for 2019 map

    Data: View and download each state's taxes as a percentage of general revenue

    Alaska, Delaware, Montana, New Hampshire, and Oregon do not levy a general state sales tax. However, Alaska allows local governments to levy their own general sales taxes, and those taxes accounted for 2 percent of its combined state and local general revenue in 2019.

    Delaware levies a gross receipts tax but Census counts its revenue as "other selective sales tax" revenue and not general sales tax revenue. The other states that levy a gross receipts tax (Nevada, Ohio, Oregon, Tennessee, Texas, and Washington) also levy a general sales tax so revenue from both taxes are possibly included in the states' collection totals.

    What are gross receipts taxes and which states levy them?

    Gross receipts taxes are also taxes on sales, but unlike a general sales tax, the tax is levied on the seller rather than the consumer. That is, the business pays a percentage of its total sales (or gross receipts) as tax to the government rather than the consumer paying a percentage of the purchase price during a transaction (and the business remitting it to the government). However, while levied on the business, the cost of the gross receipts tax is still mostly if not entirely passed on to the consumer. Importantly, a gross receipts tax typically has few or no exemptions and thus taxes business-to-business purchases. (In contrast, a general sales tax has numerous exemptions. See “What purchases are subject to the general sales tax?” below for more information.)

    Proponents argue this makes gross receipts taxes a far simpler business tax than state corporate income taxes. But opponents argue taxing business-to-business purchases, at multiple stages of production, can cause "tax pyramiding" which drives up the cost of products for consumers and creates different effective tax rates for different industries. 

    There are currently statewide gross receipts taxes in Delaware (gross receipts tax), Nevada (commerce tax), Ohio (commercial activity tax), Oregon (corporate activity tax), Tennessee (gross receipts tax), Texas (franchise tax), and Washington (business and occupation tax). The District of Columbia also levies a gross receipts tax on some industries. Each state (except for Ohio and Oregon) uses different tax rates for different industries, but nearly all the gross receipts tax rates are well below 1 percent (for example, Ohio's single rate is 0.26 percent). 

    How much do general sales tax rates differ across states?

    State general sales tax rates in 2022 range from 2.9 percent in Colorado to 7.25 percent in California. After Colorado, the next-lowest state general sales tax rate is 4.0 percent in Alabama, Georgia, Hawaii, New York, and Wyoming. California is the only state with a state general sales tax rate above 7.0 percent, but the state general sales tax rate is exactly 7.0 percent in Indiana, Mississippi, Rhode Island, and Tennessee.

    state general sales tax rates as of January 2022 map

    Data: View and download each state's general sales tax rate and local general sales tax rates

    However, the general sales tax rate paid by consumers is well above 7.25 percent in some states when local general sales tax rates are included. Thirty-eight states (including Alaska, which has no statewide general sales tax) allow local governments to impose their own general sales taxes in addition to the state general sales tax. (That total includes Mississippi and New Jersey, even though the Census Bureau did not record any local general sales tax revenue for them in 2019. Census puts revenue from these local taxes in another tax's total, most likely "other selective sales tax.")

    As of 2018, the maximum sales tax rates levied by a state’s local governments (excluding the state tax rate) ranged from 0.5 percent in Hawaii to 8.3 percent in Colorado. The number of taxing jurisdictions also varies significantly across states. For example, only three localities in Hawaii levy general sales taxes while thousands of localities levy the tax with different rates in California and Iowa.

    What purchases are subject to the general sales tax?

    State general sales taxes apply to the purchase of nearly all tangible goods. One notable exception is food purchased at grocery stores: only 13 states tax groceries, and six of those states tax grocery food at a lower rate than their general sales tax rate. The state does not tax grocery food in Georgia, Louisiana, and North Carolina, but local governments can. Hawaii, Idaho, Kansas, and Oklahoma tax grocery food but offer individual income tax credits to low-income residents to help offset the tax. Many states also exempt nonprescription drugs, textbooks, or clothing from general sales taxes.

    The taxation of services (such as dry cleaning, carpentry, and hairdressing) is more complicated. All states tax some services, but exemptions and omissions are common. And very few states tax professional services such as those rendered by doctors and lawyers. Hawaii and New Mexico are exceptions to the rule and tax a wide range of services. The reason many services are not taxed is because services often do not fall under states existing definitions of "tangible goods" (most of these rules were written nearly a century ago) and thus must be added to the tax base via legislation (a politically challenging task). For similar reasons, state taxation has only become more complicated as consumers increasingly purchase digital products. Many states tax digital products, including streaming services, but definitions of what is and is not taxable vary across states.

    A 2021 Tax Policy Center study found that the amount of purchases subject to the sales tax, including general sales taxes and excise taxes like the motor fuel tax, ranges from 5 percent in Delaware (no general sales tax) to 36 percent in Vermont and 91 percent in Hawaii. This variation was driven almost entirely by the various state approaches to taxing services. The US average is 39 percent (because most states don't tax many services).

    Additionally, in 2022, 16 states have sales tax holidays, where specific purchases, often clothes and school supplies right before the start of a new school year, are sold tax free for a short period of time.

    Do general sales taxes apply to online purchases?

    The treatment of online and other remote sales (such as catalog sales) is also complex. In 1992 the Supreme Court ruled (Quill Corp. v. North Dakota) that under the commerce clause of the US Constitution, a retailer with no physical presence in the online purchaser’s state of residence (technically called a "nexus” requirement) is not required to collect a state or local sales tax from the consumer. That is, if someone in Kansas bought something online from a store in California, and that store did not have a physical presence ("nexus") in Kansas, the store was not required to collect and remit the online sales tax to Kansas.

    However, the Supreme Court revisited this issue in 2018 in South Dakota v. Wayfair, Inc., overturned Quill, and gave states broad authority to collect the tax. In that case, the Supreme Court upheld a South Dakota law requiring any entity with sales of $100,000 or more or with over 200 transactions in South Dakota to collect and remit the state's sales tax. Other states quickly began enacting similar laws and as of May 2021, all states with a general sales tax and the District of Columbia have passed laws requiring the collection of online sales tax. The last two states to pass such laws were Florida and Missouri.

    As of June 2021, every state with a general sales tax had additionally passed laws requiring "marketplace facilitators" (i.e., Amazon and other organizations that allow third-party retailers to sell items on their platform) to collect state sales taxes on third-party sales as well.

    The ability for states to tax online transactions was critical during the COVID-19 pandemic, as consumers increasingly made purchases online instead of in "brick and mortar" stores.

    Consumers paying a general sales tax on an online purchase is not completely new, though. Many large retailers voluntarily collected the tax on their sales before the recent Supreme Court decision. Most notably, Amazon has collected state general sales taxes on their sales in every state with a general sales tax since April 2017.

    However, even if a business does not collect a general sales tax on an online transaction, the consumer is still required to pay the tax because states levy use taxes in addition to sales taxes. That is, consumers are subject to use taxes in their home state on all goods purchased outside their state of residence for consumption in their home state. The use tax rate is the same as the sales tax rate, but few consumers are aware of the tax and actually pay it. Most states with both a sales tax and an individual income tax (including California, Kentucky, Virginia, and Utah) give taxpayers a chance to pay use taxes on their income tax returns.

    Interactive data tools

    State and Local Finance Data: Exploring the Census of Governments

    State Fiscal Briefs

    Further reading

    Surveying State Leaders on the State of State Taxes
    Lucy Dadayan and Kim Rueben (2022)

    How Broad Are State Sales Tax Bases?
    Nikhita Airi and Frank Sammartino (2021)

    State Tax and Economic Review
    Lucy Dadayan (updated quarterly)

    The Evolution of Online Sales Taxes and What's Next For States
    Richard Auxier and Kim Rueben (2018)

    Congress Has Had 26 Years to Address Online Sales Taxes. It Is About To Fail One More Time
    Howard Gleckman (2018)

    Do you pay sales tax on your online holiday shopping?
    Richard C. Auxier (2016)

    Do Sales Tax Holidays Ever Make Sense?
    Richard C. Auxier (2014)

    Missouri voters were sold a bill of (taxable) goods
    Richard C. Auxier (2016)

    Note

    All revenue data are from the US Census Bureau’s Annual Survey of State Government Tax Collections. All dates in sections about revenue reference the fiscal year unless stated otherwise.

    Research Areas State and local finance
    Policy Centers Urban-Brookings Tax Policy Center