When Cook County, Illinois adopted a one percentage point county sales tax increase, its county seat — Chicago — vaulted to the top of a dubious list: major cities with the highest sales tax. Including state, county, city, and public transit sales tax impositions, Chicago’s combined sales tax will return to its former high of 10.25 percent as of January 1.
Does Chicago’s pending rate represent the highest combined state and local sales tax in the nation. It doesn’t. That distinction goes to a handful of towns in Tennessee and one in Arkansas (with 12 percent combined rates), all with populations of a few thousand people or less. A smattering of small municipalities in Arizona, Louisiana, and Oklahoma also feature higher combined rates.
Tennessee, however, foregoes an individual income tax (except for on interest and dividend income), and thus leans heavily on the sales tax as a source of state revenue. While Arizona, Arkansas, Louisiana, and Oklahoma impose all of the major tax categories, they also lean disproportionately on the sales tax, with sales tax collections as a percentage of total state and local revenue ranging from 32.4 percent in Oklahoma to 39.3 percent in Louisiana, perhaps in response to low property tax collections. The national average is 22.7 percent reliance on the sales tax for state and local revenue.
Chicago stands out because it’s a high sales tax amidst a sea of high taxes, even with the partial sunsets of the 2011 Illinois tax hikes. Its rate as of January 1, 2016 will also stand out as the highest rate in a major city. You can quibble with definitions of what constitutes a major city, but by any possible measure, Chicago will impose the highest city rate as of 2016.
If you have any questions please contact a Warady & Davis advisor at 847-267-9600.
Source: Jared Walczak – www.taxfoundation.org