State and Local Sales Taxes: What Every Small Business Owner Should Know in 2026

As a small business owner, you deal with taxes every day — whether you’re pricing goods, filing returns, or planning expansion. One of the most impactful yet often overlooked taxes is the sales tax because it affects not just your operations, but also your customers’ buying behavior and your compliance burdens. Today, we’re breaking down state and local sales tax data from the Tax Foundation’s latest analysis so you can better understand where you do business now — and where you might want to go next.

1. What Sales Tax Really Means for Your Business

Sales tax is a consumption tax imposed by states — and often by local governments — on the sale of goods and certain services. As a seller, you’re typically responsible for collecting and remitting this tax to the appropriate government authority. While the headline state-level rate is important, the combined state + local rate (what your customers actually pay) often tells a more complete story of your tax exposure.

Understanding these rates matters because:

• It directly affects pricing strategy and profit margins.
• It influences customer demand — higher taxes can dampen sales on price-sensitive items.
• It dictates compliance complexity — the more jurisdictions and layers of tax, the harder it becomes to track, collect, and remit correctly.

2. States with Highest and Lowest Sales Tax Rates

According to the Tax Foundation’s most recent data:

Highest Combined Sales Tax Rates

The states with the highest average combined state and local sales taxes tend to be in the South and Southeast. Notably:

• Louisiana leads the nation with an average combined rate over 10%, meaning customers in parts of Louisiana may pay more than $10 in tax on every $100 of taxable purchases.
• Tennessee, Arkansas, Washington, and Alabama also rank near the top, with rates generally around 9.4–9.6%.

High combined rates can create both opportunities and challenges: while revenue from sales tax might bolster public services that support business infrastructure, the higher tax burden can discourage spending — especially on discretionary items.

Lowest Sales Tax Rates

On the other end of the spectrum:

• States like Alaska, Hawaii, Maine, Wyoming, and Wisconsin have comparatively low combined rates — in some cases below 6%.
• Alaska actually has no statewide sales tax, though local levies exist; its average combined rate is the lowest nationally.

Lower rates can improve consumer demand and ease pricing pressure — but they may be balanced by other taxes (like income or property taxes), so they shouldn’t be viewed in isolation when making relocation or expansion decisions.

3. Why Local Sales Taxes Matter

State rates are just part of the picture. In many states, local jurisdictions (cities, counties, special tax districts) can add significant taxes on top of the state rate. This means:

• A business located in the same state could face very different combined sales tax obligations depending on its city or county.
• Local taxes often fund essential services — from police and fire protection to transportation — but they increase the administrative burden for businesses operating across multiple localities.

For example, even in a state with moderate base rates, heavy local add-ons can push the effective tax paid by customers much higher. Louisiana’s combined rate is a prime example: its state rate is modest, but local additions push the average well above 10%.

4. Practical Impacts for Small Business Operations

Pricing Strategy

When combined sales tax rates approach or exceed 9–10%, consider how that affects consumer psychology. For some product categories — especially big-ticket items — sales tax can become a significant part of the total cost.

Location Decisions

If you’re considering expansion or relocation, compare combined state and local tax rates. Lower rates can boost sales and reduce compliance complexity — but don’t forget to consider income, property, and regulatory burdens that also affect your bottom line.

Compliance Challenges

Multi-jurisdictional businesses need robust systems. With varying local rates and frequent rate changes, relying on manual processes increases the risk of errors — and the potential for penalties.

E-commerce Considerations

Sales tax obligations often depend on nexus — the connection between your business and a taxing jurisdiction. Nexus can be triggered by physical presence, economic activity thresholds, or marketplace facilitator laws. Staying current on these rules is essential for up-to-date compliance.

5. Looking Ahead: Trends to Watch

Sales tax rates evolve over time. Changes often result from fiscal pressures, shifts in policy priorities, or attempts to make tax codes more competitive. For example:

• Some states are adjusting rates or tax bases to attract or retain businesses.
• Local taxing authorities continue to refine their own levies, which can shift the relative rankings year to year.

Staying informed on these trends helps you anticipate cost changes and adapt your pricing, compliance systems, and growth strategy accordingly.

Being savvy about sales taxes isn’t just a compliance obligation — it’s a strategic advantage. If you invest the time to understand how combined rates affect your operations, you’ll be better positioned to price competitively, manage tax collections efficiently, and make informed decisions about where and how your business grows.

If you would like to discuss tax strategy further, click Book A Meeting.