Sales taxes in Arizona are relatively high, with the average combined tax rate here ranking 11th in one national measure.
But at least the trend in recent years has been one of stability.
Arizona’s combined average sales-tax rate of 8.33 percent ranked 11th highest in a study earlier this year by the Tax Foundation, a research group. Louisiana leads the nation in this measure, with an average rate of 10.02 percent, followed by Tennessee and Arkansas, both above 9 percent.
Five states — Alaska, Delaware, Montana, New Hampshire and Oregon — have no state-level sales taxes.
The Tax Foundation study weighted sales taxes by the population in various locations, meaning the rates in urban centers would count more than those in towns and rural areas. Combined sales taxes include those levied by cities, counties and states.
Combined sales taxes in Arizona range from below 8 percent to above 11 percent, depending on the city or town. It’s probably no coincidence that most rates hover a bit below 10 percent.
“When it comes to sales taxes, a lot of people don’t know how much they’re paying” in a particular area, said Kevin McCarthy, president of the Arizona Tax Research Association. But when combined rates near 10 percent, local taxpayers tend to become more sensitive, making it harder for politicians to raise rates further, he said.
Rates mostly steady
In Arizona, the state-level tax rate hasn’t changed in nearly 18 years, when voters approved an increase to the current 5.6 percent from 5 percent previously. Nor have most counties adjusted their levies much over the past decade. The rate is 0.7 percent in Maricopa County, for example.
On top of these rates, Arizona’s 96 cities and towns impose their own sales taxes. Many of these municipalities have refrained from raising rates for at least a decade, including seven of the 10 most populous cities in the state.
However, Arizona’s two largest cities have pushed up their rates a bit over that span, with Phoenix increasing its rate by 0.3 percent and Tucson boosting its level by 0.6 percent.
Together with rates at the state and county levels, that has resulted in a combined rate of 8.6 percent in Phoenix and 8.7 percent in Tucson.
In Maricopa County, the lowest combined sales-tax rates are in Chandler and Gilbert (each at 7.8 percent) and Scottsdale (7.95 percent). The highest rates are in Guadalupe (10.3 percent) and Gila Bend (9.8 percent).
Statewide, the highest combined rates, 11.2 percent, are in Superior and Mammoth, both in Pinal County. The lowest rate, 7.6 percent, is in Huachuca City, near the Fort Huachuca military base.
Other combined rates for larger cities in the state include Glendale (9.2 percent), Mesa (8.05 percent), Peoria (8.1 percent), Surprise (8.5 percent) and Tempe (8.1 percent).
A full list for all Arizona cities and counties can be seen at arizonatax.org, the website of the Arizona Tax Research Association, or here.
Arizona’s system is technically a transaction sales tax imposed on retailers rather than a true sales tax on consumers. Regardless, the tax bite invariably gets passed along.
For big-ticket items like vehicles, a small sales-tax differential can add up, which sometimes encourages people to make a trip to save money.
“Research indicates that consumers can and do leave high-tax areas to make major purchases in low-tax areas, such as from cities to suburbs,” noted the Tax Foundation report, which cited the example of Chicago residents leaving the city to buy big-ticket items like vehicles and appliances.
Similarly, Delaware, which lacks a state sales tax, informs incoming motorists on highway welcome signs that they have entered “The Home of Tax-Free Shopping.”
Competition among areas makes it hazardous for cities, counties and states to increase their rates well above levels imposed by neighbors.
“State and local governments should be cautious about raising taxes too high relative to their neighbors because doing so will yield less revenue than expected or, in extreme cases, revenue loss despite the higher tax rate,” said the Tax Foundation report.
But other factors also affect sales, including product selection, customer service and the number of potential buyers nearby. For example, Phoenix, the most populous Valley city, also has the most auto dealerships, according to the Arizona Automobile Dealers Association. Next come Peoria, Scottsdale, Mesa and a tie between Chandler and Tempe. Glendale has the fewest dealerships among large Valley cities.
Tax bases vary, too
The Arizona rates listed above are for general retail transactions, but many municipalities charge different amounts for hotel rooms, contractor services, restaurant meals, telecom services, utilities and more.
Arizona’s tax base is relatively broad. “We tax more things than a lot of other states,” said McCarthy, citing electricity and contractor services as examples. A broad base and relatively high rates mean tax collections here are on the high side.
That’s one thing that makes sales-tax comparisons difficult: The tax base, or range of goods and services on which taxes apply — can vary considerably.
Looking ahead, Arizona government entities might be able to rely more on Internet sales taxes, but only if tax collectors here simplify their systems. A U.S. Supreme Court ruling in June opened the door for more states to tax sales from remote vendors, provided those sellers don’t face a burden in terms of figuring out the combined tax rates in various locations.
With one of the most complex and burdensome tax systems in the nation, Arizona will need to simplify matters if it hopes to generate more online collections, McCarthy said.
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