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Restaurants’ new reality: ‘tax-rate shopping’

Sharp differences in state and local sales taxes are prompting both consumers and businesses like restaurants to alter their shopping patterns, according to a new study from the Tax Foundation.

The non-partisan researcher and think-tank says the discrepancies in rates can trump convenience when the public is deciding where to spend money. For instance, “strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago's 9.25 percent sales tax rate,” the Foundation reported.

Tax-rate shopping also influences business operators’ choice of sites, it added. “A stark example of this occurs in the Northeast part of the country,” the Foundation explained in a report that ranks state sales taxes. “Even though I-91 runs up the Vermont side of the Connecticut River, many more retail establishments choose to locate on the New Hampshire side of the river to avoid sales taxes.” 

Vermont’s state and local sales taxes add up to a levy of 6.14 percent, while New Hampshire and local jurisdictions don’t levy sales taxes.

“Per capita sales in border counties in sales tax-free New Hampshire have tripled since the late 1950s, while per capita sales in border counties in Vermont have remained stagnant,” the Foundation learned.

It also noted that Delaware, another sales-tax-free state, is trumpeting that distinction to travelers and tourists. Signs at the state’s border welcome motorists to the Home of Tax-Free Shopping.”

New Hampshire and Delaware are two of the five states that do not collect sales taxes. The others are Alaska, Montana and Oregon. An additional seven states levy a statewide sales tax but no local fees.

At the other end of the spectrum is Tennessee, with a combined state and local sales tax of 9.45 percent. Rounding out the Top Five are Arkansas (9.19 percent), Louisiana (8.89 percent), Washington (8.88 percent) and Oklahoma (8.72 percent.)

Four states—Virginia, Arkansas, Ohio and Maine—recently raised their sales taxes, while three jurisdictions—Arizona, Kansas and the District of Columbia—lowered theirs, the Foundation reported.

The Washington, D.C.-based Tax Foundation describes itself as the nation’s leading independent tax policy research organization. It was founded in 1937.

 

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