Sales tax rates vary widely across the United States. While most states impose a statewide sales tax, many also allow counties, cities, and special districts to add their own local rates. The result? A patchwork of combined state and local sales tax rates that can differ dramatically not just by state, but by ZIP code.

For businesses operating in multiple jurisdictions, understanding which states with the highest sales tax rates apply to them is crucial to manage compliance risk, pricing strategy, and filing complexity. This guide breaks down the states with the highest sales tax and what businesses should know if they operate there.

What Determines Sales Tax Rates by State?

Sales tax is imposed at two primary levels:

1. State vs. Local Sales Tax

Most states set a base statewide rate. Local governments, including counties, cities, and special districts, may add their own rates on top of the state rate. These additions are authorized under state law.

For example, a state may impose a 6% sales tax, while local jurisdictions add 2–4%, resulting in a much higher combined rate.

2. County & City Add-Ons

Local add-ons can significantly increase the total rate. In some metropolitan areas, combined rates exceed 9% or even 10%.

3. Budget Structure and Revenue Mix

States rely on different combinations of income, property, and sales taxes to fund public services. States that rely more heavily on consumption taxes may set higher sales tax rates.

4. The No-Income-Tax Tradeoff

Some states with no individual income tax rely more heavily on sales tax revenue. Tennessee and Nevada are examples of states without a broad-based individual income tax that also have high combined sales tax rates. (For more context, see our guide to states with no sales tax.)

States With the Highest Sales Tax Rates (Ranked)

Rates below reflect statewide rates and approximate average combined state + local rates. Combined averages vary by locality and are subject to change.

1. Louisiana

State rate: 4.45%
Average combined rate: ~9.55%

Why it’s high: Louisiana allows extensive local sales tax additions, which significantly increase the combined rate in many jurisdictions.

Business takeaway: Local administration of sales tax in Louisiana can be complex, as parishes often administer and audit their own local taxes separately from the state.

2. Tennessee

State rate: 7.00%
Average combined rate: ~9.55%

Why it’s high: Tennessee has one of the highest statewide rates in the country and also permits local option taxes.

Business takeaway: Businesses should carefully track local rates, especially if selling into multiple Tennessee counties.

3. Arkansas

State rate: 6.50%
Average combined rate: ~9.45%

Why it’s high: Arkansas permits substantial local additions, pushing combined rates higher in many cities.

Business takeaway: Sellers must apply the correct destination-based combined rate for each transaction.

4. Washington

State rate: 6.50%
Average combined rate: ~9.38%

Why it’s high: Washington relies heavily on sales tax revenue and has no personal income tax. Local jurisdictions also impose additional rates.

Business takeaway: Washington’s business and occupation (B&O) tax is separate from sales tax and may apply even when no sales tax is due.

5. Alabama

State rate: 4.00%
Average combined rate: ~9.29%

Why it’s high: While the state rate is moderate, local jurisdictions can add significant additional tax.

Business takeaway: Alabama is a “home rule” state, meaning many localities administer their own sales tax, increasing compliance complexity.

6. Oklahoma

State rate: 4.50%
Average combined rate: ~8.98%

Why it’s high: Cities and counties frequently add local sales tax rates.

Business takeaway: Businesses must monitor both state and municipal rate changes.

7. Illinois

State rate: 6.25%
Average combined rate: ~8.86%

Why it’s high: Illinois permits layered local taxes in certain jurisdictions, particularly in major metro areas like Chicago.

Business takeaway: Chicago and surrounding areas can have materially higher rates than the statewide base.

8. California

State rate: 7.25%
Average combined rate: ~8.85%

Why it’s high: California has one of the highest statewide base rates. Local district taxes can increase the combined rate further.

Business takeaway: California’s district taxes apply based on destination sourcing for most transactions.

States With High Local Sales Taxes (Even if the State Rate Is Lower)

Some states may not rank highest at the statewide level but have metro areas with elevated combined rates due to aggressive local add-ons.

Examples include:

• Colorado (2.90% state rate, but significant local home-rule authority)
• Arizona (5.60% state rate with transaction privilege tax structure)
• Missouri (4.225% state rate with layered local taxes)

In these states, business location alone does not determine exposure. Depending on your sales tax nexus footprint, you may need to collect the applicable combined rate.

How High Sales Tax States Impact Businesses

High combined rates affect more than checkout totals.

1. Higher Compliance Risk

More jurisdictions mean more potential registration requirements, filings, and audit exposure.

2. Customer Pricing Sensitivity

In higher-tax states, the total cost to the customer increases. Businesses should factor sales tax visibility into pricing strategy.

3. Filing Complexity

States with heavy local administration (e.g., Louisiana, Alabama, Colorado) often require separate filings or additional reporting layers.

4. Audit Exposure

Higher revenue reliance on sales tax can translate into increased enforcement activity. Businesses operating in high-rate states should ensure documentation and exemption certificate management are accurate and current.

A quick reminder, sales tax compliance is not just about the rate. Peace of mind comes from applying the correct combined rate, filing accurately, and responding confidently to notices.

What Businesses Can Do If They Operate in High-Tax States

If you operate in states with high sales tax, a proactive approach matters.

• Understand your nexus exposure. Economic nexus thresholds vary by state. Start with nexus before making registration decisions.
• Register correctly. Ensure you are registered in the correct jurisdictions.
• Apply accurate combined rates. Sales tax is typically destination-based for remote sellers.
• Automate calculations. Rate databases change frequently. Automated tools can reduce error risk.
• Monitor rate changes. Local jurisdictions regularly adjust rates, especially in high-tax states. (You can sign up for our newsletter for updates or head to our mini blog hub where legislation changes are announced).

The name of the game is structured compliance. 

Final Thoughts: Navigating Sales Tax in High-Rate States

Operating in high sales tax states doesn’t have to mean higher risk. When you start with nexus, businesses can navigate combined state and local sales tax requirements confidently.

High rates increase complexity. Complexity increases exposure. But with clear processes, accurate rate application, and ongoing monitoring, your business can stay compliant and focused on growth.

If you’re unsure where you stand, start by calculating your nexus footprint and reviewing your combined rate accuracy. Simplify your sales taxes and protect your business (before an auditor asks questions).

The post States with the Highest Sales Tax appeared first on The Sales Tax People.

The post States with the Highest Sales Tax appeared first on VAYA TAX & BUSINESS CONSULTANTS.

Updated – Originally published February 5th, 2025

Managing sales tax can feel overwhelming—especially as your business grows and expands into multiple states. Each state has its own sales tax rates, filing deadlines, and compliance rules. One of the most commonly misunderstood rules is trailing nexus.

Trailing nexus can require your business to continue collecting and remitting sales tax after you’ve left a state or fallen below its nexus threshold. In this guide, we’ll explain what trailing nexus is, how it works, which states enforce it in 2025, and how to stay compliant—without the stress.

Trailing Nexus: Simple Definition

Trailing nexus (sometimes called residual nexus) means a business may still be required to collect and remit sales tax for a period of time after it no longer meets a state’s physical or economic nexus thresholds.

Sales Tax Nexus Basics

Sales tax nexus determines whether your business has a legal obligation to collect and remit sales tax in a state. Nexus is created when your business reaches a minimum level of activity in a state, and it’s your responsibility to understand when you’ve crossed that line.

There are two primary types of sales tax nexus:

Physical Nexus

Physical nexus is created when your business has a tangible presence in a state. This can include:

• A store, office, or warehouse
• Inventory stored in the state
• Employees or remote workers living in the state

Many businesses are surprised to learn that a single remote employee can establish physical nexus—even if the business owns no property there.

Economic Nexus

Economic nexus is created when a business reaches a certain level of sales or transactions in a state, even without a physical presence. These thresholds vary by state and are typically based on:

• Total revenue in the state
• Number of transactions in the state

Because nexus rules differ in every state, tracking your activity across state lines is essential. For many businesses, nexus impacts strategic decisions about hiring, expansion, and where to sell products or services.

How Trailing Nexus Works

Trailing nexus comes into play after a business no longer meets a state’s nexus threshold—but isn’t immediately released from its sales tax obligations.

Why States Use Trailing Nexus

States recognize that economic activity doesn’t stop instantly. Even if a business closes a physical location or dips below an economic threshold, prior activity can continue to generate revenue. Trailing nexus allows states to collect sales tax on this continued economic impact.

How Long Trailing Nexus Lasts

The duration of trailing nexus varies by state. Some states require collection through the end of the calendar year, while others require businesses to remain registered until they formally withdraw their sales tax license.

Trailing Nexus vs. Regular Nexus

• Regular nexus: Your obligation begins when you exceed a threshold.
• Trailing nexus: Your obligation may continue after you fall below that threshold or leave the state.

Trailing Nexus Laws by State (2025 Update)

Sales tax laws change frequently, so it’s important to stay current. As of 2025, the following states have clear trailing nexus rules.

States With Trailing Nexus

• California trailing nexus: Remote businesses with economic nexus must continue collecting sales tax for the entire calendar year following the year they fall below the nexus threshold.
• Colorado trailing nexus: Remote sellers are required to collect sales tax for the entire calendar year following the year they no longer meet economic nexus.
• Michigan trailing nexus: Businesses with physical nexus must collect sales tax for 11 months after nexus ends. Remote sellers with economic nexus must collect for the entire following calendar year.
• Missouri trailing nexus: Businesses maintain nexus until they formally withdraw their sales tax registration.
• Washington trailing nexus / Washington State trailing nexus: Businesses must collect sales tax for the entire calendar year following the year nexus is no longer met.
• Wisconsin trailing nexus: Even after falling below nexus thresholds, businesses must collect and remit sales tax through the end of the year.

States WITHOUT Trailing Nexus

The following states have expressly stated that trailing nexus does not apply:

• Connecticut
• District of Columbia
• Florida 
• Idaho
• New York 

States With Unclear or Unspecified Trailing Nexus Rules

Many states have not explicitly addressed trailing nexus in their statutes or guidance. In these states, it’s generally accepted that trailing nexus does not apply—but this can change. This uncertainty is why searches like trailing nexus states and what states have trailing nexus remain so common.

Examples of Trailing Nexus in Action

Economic Nexus Trailing Example

A remote seller exceeds $100,000 in sales in a state during 2024, creating economic nexus. In 2025, sales fall below the threshold—but the state requires collection for the entire 2025 calendar year under trailing nexus rules.

Physical Nexus Trailing Example

A business closes its warehouse in a state in June. Even though physical nexus ends, the state requires continued collection for several additional months due to trailing nexus.

Trailing Nexus for Income Tax

Trailing nexus is most commonly discussed in the context of sales tax, but similar concepts can apply to income tax trailing nexus. Some states may continue to assert income tax filing obligations even after a business exits the state. Income tax trailing nexus rules vary widely and should be reviewed separately from sales tax requirements.

How Long Does Trailing Nexus Last?

Why Trailing Nexus Matters for Remote Sellers

Trailing nexus is especially important for:

• E-commerce businesses
• Remote sellers
• Businesses with remote employees
• Sellers of digital goods and services

As digital commerce continues to grow, states are paying closer attention to remote activity—and trailing nexus allows them to extend tax obligations beyond the moment nexus technically ends.

How to Stay Compliant With Trailing Nexus

Track Activity in Every State

Monitor revenue, transaction counts, and physical presence in each state where you operate.

Maintain Required Records

Strong recordkeeping is essential:

• Sales receipts: keep for at least seven years
• Invoices: keep for at least seven years
• Exemption certificates: keep permanently
• Sales tax returns: keep permanently

Deregistration Isn’t Instant — Know Your State Rules

Canceling your sales tax license doesn’t automatically end your obligation. Trailing nexus rules may still apply—even after deregistration.

Do You Need a Sales Tax Expert?

Trailing nexus adds yet another layer of complexity to sales tax compliance. When you’re operating in multiple states, staying compliant requires clarity, organization, and ongoing attention.

At The Sales Tax People (formerly Peisner Johnson), real accountants and consultants help you understand your nexus footprint, manage trailing nexus exposure, and simplify your sales tax process—so you can focus on growing your business with confidence.

Simplify your sales taxes. Protect your business. Discover peace of mind.Schedule a free What’s Next? consultation to get clear answers and a plan you can trust.

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