Tennessee has highest sales tax rate in U.S.

PDF: Tax Foundation comparison of states

Shoppers in Tennessee pay the highest sales tax rate in the nation, the Tax Foundation said Friday.

The nonpartisan study group said the combined state and local sales tax adds an average 9.4 cents for every $1 spent by consumers in Tennessee, or nearly 38 percent more than the median sales tax nationwide. By comparison, the combined state and local sales tax rate averaged just over 7 percent in Georgia and 6.15 percent in Alabama.

Although some localities in central Alabama have higher combined rates of up to 11 percent, Tennessee averaged the highest rate among all 50 states. The Tax Foundation said Tennessee derives nearly 57 percent of its tax revenue from sales taxes -- the third highest among the 50 states.

Critics of Tennessee's reliance upon consumer taxes complain that low-income persons have to pay a bigger share of their income and merchants in border communities like Chattanooga lose sales to neighboring states.

"Tennessee's sales tax is regressive tax so those that can least afford it have to pay the most," said Samantha Maples, a community organizer for Tennesseans for Fair Taxation, a pro-income tax group. "In addition to being unfair, the sales tax also hurts businesses along our borders and it is simply inadequate to fund our government."

Georgia's sales taxes average one-fourth less than those in Tennessee because the Peach State has a more diversified tax system.

Sarah Beth Gehl, deputy director of the Georgia Budget and Policy Institute, said Georgia relies upon taxes on income, property and sales to fund government.

"It's a well balanced tax structure compared with a lot of states and we think that adds to the stability and fairness of our system," she said.

But Drew Johnson, president of the Tennessee Center for Policy Research, said relying upon sales taxes is better than using income taxes to fund government. Tennessee is one of nine states that does not impose a tax on earned income, although the state does have a Hall income tax on dividend income.

"Our sales tax in Tennessee doesn't need to be as high as it is and the government should look for ways to cut spending and waste," he said. "But the sales tax is still the fairest and most responsible way to tax residents of the state. Tennessee is a haven for entrepreneurs because we don't have an income tax."

Nonetheless, Dr. Kail Padgitt, staff economist for the Tax Foundation and author of the study comparing local sales tax rates, said a growing number of states are raising so-called "millionaire taxes" on the income of the wealthiest taxpayers and so-called "sin taxes" that raise sales taxes on cigarettes or beer.

"We definitely seeing more movement upward than downward in taxes on the state level, and the most popular seem to be to target particular types of tax groups," he said.