Based on its flat 7% sales tax rate, Rhode Island wound up in the middle of the pack in a nationwide analysis of states' policies. In its 2023 analysis of state and local sales tax rates, the Washington, D.C.-based think tank Tax Foundation ranked Rhode Island No. 24.

Rhode Island receives middling ranking in nationwide sales tax analysis

(The Center Square) – Based on its flat 7% sales tax rate, Rhode Island wound up in the middle of the pack in a nationwide analysis of states’ policies.

In its 2023 analysis of state and local sales tax rates, the Washington, D.C.-based think tank Tax Foundation ranked Rhode Island No. 24.

Unlike many of the states that use sales taxes for revenue, Rhode Island does not give local county and municipal governments the authority to impose an additional sales tax, meaning the 7% rate is the same from one corner of the state to the next.

Rhode Island’s sales tax rate has been a hot topic as the new legislative year gains momentum.

In his upcoming fiscal year 2024 budget, Gov. Dan McKee has recommended trimming the tax rate to 6.85%. Calls to cut it even further – to as low as 5% – have more recently been sounded by the Republican minority leaders in both chambers of the General Assembly.

Andrew Grande, communications director with Rhode Island-based research and policy organization the Economic Progress Institute, said rate reductions would not have a direct impact across all segments of the state’s consumers. The institute generally leans left on political issues.

“The state exempts many basic needs from the sales tax – including food, medicine and most clothing,” Grande wrote in an emailed statement to The Center Square. “Any efforts to reduce it will disproportionately benefit those with the highest incomes.”

Neighboring states have lower sales tax rates. Connecticut, with a flat 6.35% rate, ranked No. 33, while Massachusetts and its 6.25% rate is No. 36.

Neither Connecticut nor Massachusetts allow county and municipal governments to impose a sales tax on top of the state base, meaning their rates also are the same throughout.

Janelle Fritts, author of this year’s Tax Foundation analysis, offered cautionary comments about states’ tax rate policies.

“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,” Fritts said.

Citing an example, Fritts pointed to Illinois, where “evidence suggests that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago’s 10.25% sales tax rate.”

The same principle, Fritts said, can apply to entire states – particularly areas that are in close proximity to a neighbor.

Five states do not impose a sales tax of any kind: Alaska, Delaware, Montana, New Hampshire, and Oregon.

The five states with the highest combined state and local tax rates were Louisiana (9.55%), Tennessee (9.54%), Arkansas (9.46%), Alabama (9.25%), and Oklahoma (8.98%).

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