New Hampshire’s state lines are dotted with shopping malls. The Pheasant Lane Mall’s parking lot is largely located in Massachusetts, though the mall itself sits within the Live Free or Die State. Stores cluster on the east side of the Connecticut River in New Hampshire, though the main interstate, I-91, runs along the west side of the river in Vermont. To shoppers, the reason is obvious: New Hampshire has no sales tax. As the owner of the state-line-adjacent Mall at Rockingham Park notes, you can “Shop TAX FREE all year long” at the stores “conveniently located just over the Massachusetts border.” The Pheasant Lane Mall even removed a cornerstone that would have extended a few feet over the border, avoiding contact with the state once known as “Taxachusetts.”
In recent years, consumers have had even more incentive to cross state lines in search of lower taxes. During the Great Recession in 2009, Massachusetts raised its sales tax from 5 percent to 6.25 percent; Maine followed in 2013, increasing its rate from 5 percent to 5.5 percent. Post-Covid inflation has driven up the price of goods—along with the amount of sales tax owed—even as incomes have lagged.
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Since the pandemic, the cost of living has become the defining issue in American politics. Yet as inflation surged, few politicians targeted one of the most direct and controllable costs they impose on everyday purchases: the sales tax. Unlike property and income taxes, which have periodically provoked revolts, sales taxes have rarely faced organized political opposition. That helps explain why they are the one major tax category whose rates have risen almost continuously over the past century. Taken together, general sales taxes and selective sales taxes—special levies on goods such as cigarettes or rental cars—now constitute the largest source of revenue raised by state and local governments. Politicians truly concerned about the cost of living could start by reducing the one charge that most directly increases it.
States began imposing general sales taxes during the Great Depression. Cratering property-tax revenues led Mississippi to levy the first one in 1930. By 1950, 28 states had them, mostly taxing sales at about 2 percent. In the coming decades, all except five states would impose them (Vermont was the last to adopt one, in 1969), and the rate kept ratcheting upward. California’s sales-tax path is instructive: the tax started during the Depression at 2.5 percent, hit 4 percent in the 1960s, and had climbed to over 6 percent by the early 2000s. When combined with a mandatory sales tax collected by local governments, the rate is 7.25 percent.
Since getting authority from the states to enact their own sales taxes, localities’ rates have followed a similar upward path. In 1935, New York became the first city to authorize a general sales tax. Its one-cent, or 1 percent, rate had jumped to 3 percent by the early 1950s and now stands at 4.5 percent, plus a small extra sales tax for transit. When combined with the state rates, the city takes nearly 9 percent from shoppers. Thirty-eight states now allow local governments to impose their own sales taxes. In California, cities and counties can levy local sales taxes on top of state-mandated ones, which can push the combined state and local rate as high as 9.25 percent.
Sales-tax revenues exploded after the Supreme Court’s 2018 South Dakota v. Wayfair decision, which allowed state and local governments to charge sales taxes for online purchases. Internet retailers now must contend with more than 12,000 separate state and local sales-tax jurisdictions. The decision also spawned a host of new companies that help businesses navigate the tax maze, for fees that can range up to hundreds of thousands of dollars. (See “The Tax Nexus Cometh,” Spring 2023.) All states with sales taxes have expanded them to include online or “remote” sales, bringing in tens of billions in extra revenue by 2021.
In that year, states and local governments collected nearly $700 billion in sales taxes. Most of these were general sales taxes, covering all types of products. But just over $200 billion flowed from “selective” sales taxes, especially on alcohol, cigarettes, and gasoline. Coinciding with the inflation spike in 2021, sales taxes began climbing even more rapidly, with state sales-tax revenues surging 10 percent. In 2022, the increase was 14 percent. By 2023, even as inflation eroded the real value of state corporate and personal income-tax receipts, real sales-tax revenues kept climbing. Inflation made sales taxes a highly effective revenue tool—but it also made consumers more determined to avoid them.
As many Massachusetts residents will remind you, anyone buying goods in New Hampshire is technically required to pay a “use” tax to their home state. Almost no one does. Years ago, Massachusetts sued Town Fair Tire, a New Hampshire retailer just across the border, in an effort to obtain records on its clearly out-of-state customers. In response, New Hampshire passed a law, sponsored by then-state and now-U.S. senator Maggie Hassan, making it illegal for stores to share customer information with other states’ tax authorities. Town Fair Tire and its customers remained inviolate.
Today, only Delaware, Alaska, Montana, Oregon, and New Hampshire lack a general sales tax—and they’re not shy about advertising it. Drivers into Delaware were once greeted with the sign “Home of Tax-Free Shopping,” printed in bigger and bolder letters than Delaware’s previous claim to fame of being “The First State.” Following Wayfair, many people posted online threads asking how to get a shipping address in one of the tax-free states. One company offers a service for businesses to route products through Oregon or Delaware to avoid intermediate sales taxes—those charged when a firm buys goods before using them in manufacturing or resale. The company Global Shopaholics provides customers with a Delaware shipping address, allowing buyers from other countries to send their purchases there first before the goods get forwarded abroad tax-free. Other states’ tax authorities lament such arrangements, but they mostly reflect the widening gap between taxed and tax-free states.
Though economists generally tout the sales tax as an efficient way to raise revenue, with fewer distortions and loopholes than income taxes, the tax has become more riddled with exceptions and special rates over time. Currently, about 60 percent of all sales go untaxed, meaning that the remaining goods must bear a much higher rate. The reason: sales taxes mainly apply to physical goods, such as cars or electronics, but generally ignore services, such as haircuts or dental care, which constitute a growing share of the U.S. economy.
States often offer one-off exemptions to benefit certain groups. Many states provide exemptions for the necessities of clothing, food, and prescription drugs, for example, but others give a pass to flags, newspapers, feminine hygiene products, and renewable energy products. Deciding whether a good falls into a state’s exemption can require firms to exercise Talmudic intricacy. Wisconsin once issued guidance explaining which types of ice cream cake were taxable. The inclusion of utensils, or even a layer of fudge, could transform the dessert from a nontaxable food item into a taxable indulgence.
States have also used sales-tax exemptions to favor specific areas. Rather than competing with neighboring Delaware by cutting its general tax rate, New Jersey in 1983 created special Urban Enterprise Zones, allowing businesses in designated “underprivileged” areas to collect only half the state sales tax. In practice, the policy mainly benefits large retailers that draw customers from elsewhere in the state. Trenton’s enterprise zone became the surprising home to one of the largest Steinway piano dealers in the U.S., whose chief estimated that 80 percent of customers came from out of town.
For years, economists and policy experts, such as those at the Tax Foundation, have urged governments to “broaden the base and lower the rate,” meaning that they should tax more kinds of sales, especially services, while reducing overall rates. A rare success came in Washington, D.C., which in 2014 expanded its sales tax to cover services such as yoga studios and gyms and used the new revenue to cut income taxes and other levies. This proposal garnered support from an unusually broad coalition, ranging from the left-leaning Citizens for Tax Justice to Grover Norquist’s conservative Americans for Tax Reform.
More often, states have expanded the range of taxable services without lowering rates. Though the Wayfair ruling primarily addressed whether online retailers must collect sales tax, it also cleared the way for taxing all online transactions. Since then, many states have enacted taxes on digital downloads, streaming services, software subscriptions, and video games. States and cities have broadened selective sales taxes—imposing higher, separate rates on prepared meals, vending-machine sales, hotel stays, rental cars, cell phones, and live entertainment.
The purpose of the sales tax is to raise revenue from personal consumption—people spending money for their own enjoyment. Yet transactions between businesses often get taxed as well. Though states have tried to limit intermediate taxes—companies paying taxes on sales to each other—one state-commissioned estimate found that over 40 percent of total sales taxes came from business-to-business sales. Beyond distorting business decisions—since firms pay tax when they buy a product but not when they produce it themselves—these taxes can “pyramid,” with the same item taxed multiple times at different stages of production. The added costs are ultimately wrapped into the final price, even if the shopper never sees them on the receipt.
Progressives have long railed against sales taxes as regressive, disproportionately burdening the poor; but in recent years, they’ve readily supported higher local sales taxes—so long as the revenue funds their political priorities.
Sales taxes have become a popular way to pay for homeless services and subsidized housing, for instance. In 2024, Los Angeles County approved a half-cent sales tax for homeless housing and services, which was expected to generate over $1 billion annually—with no sunset date, as is typical for local tax measures. The fact that L.A. had already enacted a quarter-cent sales tax for the same purpose just seven years earlier—and that it produced no visible improvement—did little to dissuade local politicians or the county’s notably progressive voters. Politicians and voters ignored how previous sales-tax revenues were spent on apartments that averaged $600,000 per unit and whose construction was rife with corruption, as shown by the indictment of a city councilman who accepted bribes from prospective developers of homeless housing. Denver adopted a sales tax for homeless initiatives in 2020; the city failed to pass another such measure last year only because voters instead approved a sales tax to subsidize health care.
Many jurisdictions now ask voters to approve separate sales taxes to fund transit. Just before Los Angeles passed its first sales tax for homelessness, the county enacted a half-cent sales tax for transportation and transit. Since then, transit use has fallen by about one-fourth. In 2020, Seattle likewise raised its sales tax to support transit projects. That didn’t stop transit ridership from dropping by one-fourth from pre-pandemic levels.
After the pandemic period’s steep drop in ridership, many transit agencies, heedless of the strain on inflation-burdened consumers, sought more revenue rather than cut services to reflect diminished demand. In 2024, Columbus, Ohio, and Nashville, Tennessee, authorized half-cent tax increases to fund their transit systems. Mecklenburg County, the home of Charlotte, North Carolina, passed a one-cent tax hike for transit in November 2025.
While voters must approve most of these local sales taxes, government agencies try to obfuscate where the money is going. Los Angeles said that the first goal of its sales tax for transportation was to “improve freeway traffic flow” and that another objective was to “repave local streets, repair potholes, synchronize signals.” But buried deep in the spending plan, the government acknowledged that only 17 percent of the funds were going to roads; the rest went to transit and more niche travel modes like bicycle paths. Other governments have tried to remove voters entirely from tax decisions. In 2020, Washington State gave local governments the power to impose a sales tax for affordable housing without submitting the proposal for voter approval.
The enduring mystery of the sales tax is why it never seems to go down. Other levies face frequent taxpayer revolts, but the hit to consumers from a penny sales tax is apparently abstract enough that most don’t notice it. Louisiana made one of the rare sales-tax reductions in recent years, in 2018, reducing its top rate by over half a cent. But this year, it returned to its previous rate of 5 cents as part of a general tax reform.
Even when politicians talk about the cost of living, the sales tax rarely comes up. Zohran Mamdani won the mayoral election in New York largely by promising to bring living costs under control, and other progressive city politicians have followed his lead. Yet none has suggested cutting the 8.875 percent surcharge that government adds to purchases. Instead, progressives in New York, like their counterparts nationwide, have pushed for new consumer taxes to fund their priorities, even while touting their affordability agendas.
The steady rise of sales taxes, along with their growing complexity, adds to the burden on businesses and consumers already strained by inflation. Politicians could act to ease that burden. It remains striking how few seem interested in doing so.
This article is part of “An Affordability Agenda,” a symposium that appears in City Journal’s Winter 2026 issue.
Photo: Few politicians have targeted levies on consumer purchases as a way of reducing prices. (Lindsey Nicholson/UCG/Universal Images Group/Getty Images)
