Sales Tax Rates Hit All-Time High in 2010

By Marcia Richards Suelzer, Toolkit Staff Writer

Rate increases, new taxing jurisdictions, and a wider range of taxable transactions all added up to an increased sales tax burden throughout most of the United States in 2010.

The average combined U.S. sales and use tax rate was 9.64 percent in 2010, up nearly a percent point from 2009, according to the annual Sales Tax Rate Report by Vertex Inc., a leading provider of sales tax solutions. The combined rate is now at the highest level since Vertex began tracking sales tax nearly 30 years ago.

While only three states (Arizona, Kansas and New Mexico) increased the statewide rate, 59 counties, 227 cities and 233 special districts increased or imposed a new sales tax during 2010. The good news is that, in most places, the sales tax burden is lower than the combined average. Because the combined tax rate aggregates U.S. state, county, local and special purpose tax districts (such as Indian reservations and empowerment zones), it represents the worst-case scenario: five states have no sales tax at all, and an additional four have only a state-wide tax.

The tax rate is only part of the story for the small business owner. Even if the tax rate stays the same, states have been expanding the reach of their sales tax to include more products and defining a wider range of services as taxable. For example:

• the state of Washington imposed sales tax on bottled water and candy, an additional tax on beer, and an excise tax on carbonated beverages;
• the city of Phoenix, Arizona, began imposing a two percent tax on the sale of food for home consumption -- products that were previously exempt from tax; and
• Missouri's Department of Revenue ruled that fees charged by martial arts schools for Chung Do Kwan instruction, yoga, kickboxing, and various other group fitness classes are subject to Missouri sales tax.

These are only a few examples of the extended reach of sales, use and privilege taxes in 2010; a trend that is not likely to abate during 2011.

Take Action. Make sure that you have the latest rate schedules and forms so that you can stay in compliance with your state's sale tax laws. The Department of Revenue web site for your state is likely to be an excellent source of current information. Many states offer web-based seminars, as well as booklets and forms to help make compliance easier.

Posted February 23, 2011.