Home Consumption Taxes What States Implement Consumption Sales Tax

What States Implement Consumption Sales Tax


Consumption sales tax is a tax system that is implemented in numerous states in the United States, and it is one of the most popular means of taxing goods and services consumed by consumers. This tax system is also referred to as a value-added tax or a consumption tax. It is an indirect form of taxation, where the final consumers of goods and services are responsible for paying the taxes.

Consumption sales tax is a vital component in the government’s effort to raise revenue that can be used to fund vital services such as education, healthcare, transportation, and security. In this article, we will explore what consumption sales tax is, the states that implement it, how it works, the benefits and drawbacks of the system, and how it compares with other tax systems used around the world.

What is Consumption Sales Tax?

Consumption sales tax is a tax that is levied on goods and services consumed by a consumer. It is usually applied to the final price of a product or service and added to the total cost that the consumer pays. In the United States, the consumption sales tax is a state-level tax, and each state is allowed to set its own tax rate.

The consumption sales tax is charged at different rates on different products and services. The tax is calculated as a percentage of the cost of a product or service, and the rate can vary from state to state. Some states apply a flat rate for all products and services, while others may apply different rates that are specific to certain products or services.

Which States Implement Consumption Sales Tax?

Currently, forty-five states and the District of Columbia implement a consumption sales tax system. These states include Alabama, Arkansas, Arizona, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.

States without Consumption Sales Tax

The five states that do not implement the consumption sales tax system are Alaska, Delaware, Montana, New Hampshire, and Oregon. These states rely on other forms of taxation to provide revenue for the government.

However, it is important to note that just because a state does not implement consumption sales tax, it does not mean that they do not have any form of taxation. For instance, Alaska relies on natural resource taxation, while New Hampshire and Oregon rely on other forms of indirect taxation.

How Does the Consumption Sales Tax System Work?

The consumption sales tax system works by taxing the final purchaser of a good or service. Once a product or service has been produced, all the taxes that were levied along the supply chain are included in the final price that the consumer pays. The tax is not levied on the products or services themselves, but instead, it is added to the total price of the item.

For example, if a pair of shoes costs $100, and the tax rate is 5%, the final price that the consumer pays will be $105. The $5 is the tax that the consumer pays, and it goes to the state government.

There are two types of consumption sales tax systems: the single-stage system and the multi-stage system.

Single-stage System

The single-stage system is applied only at the final stage of production or distribution. This means that only the final buyer pays the tax. In this system, the producer or supplier does not pay the tax. An example of a single-stage system is the sales tax on automobiles.

Multi-stage System

The multi-stage system is applied at every stage of production or distribution. This means that every seller along the supply chain pays a tax on the products or services during the production process. The tax is levied on the value-added at each stage of production, hence its other name, the value-added tax. The sellers along the supply chain can claim back the tax that is paid on the products or services that they purchase during the production process. An example of a multi-stage system is a tax on groceries.

Benefits of Consumption Sales Tax

1. High revenue generation: Consumption sales tax generates a high amount of revenue for state and local governments. It is one of the most efficient ways to raise revenue for public services.

2. Promotes savings: Consumption sales tax promotes savings and investment. It limits the amount that consumers can spend on goods and services. This, in turn, encourages saving and investing in other ventures that will generate income.

3. Equitable tax system: Consumption sales tax promotes an equitable tax system. It ensures that everyone pays taxes regardless of their income levels.

4. Helps the economy: Consumption sales tax can help stimulate the economy. It creates a more stable source of government revenue, which can be used to fund public infrastructure projects, which, in turn, creates more employment opportunities.

Drawbacks of Consumption Sales Tax

1. Regressiveness: Consumption sales tax is seen as a regressive tax system. This means that it falls heavily on low-income earners and the poor. The reason for this is that low-income earners have to use a significant percent of their income to spend on basic goods and services, and since consumption tax is levied on all goods and services, regardless of the income level of the consumer, it has a more significant impact on low-income earners.

2. Complex tax system: Consumption sales tax is a complex tax system, which can be difficult to implement and manage. There are different rates for different goods and services, which can be hard to calculate and administer.

3. Reduces demand: Consumption sales tax can reduce the demand for goods and services, which leads to less consumption and less revenue for businesses. This can have a negative impact on the economy.

4. Increases prices: Consumption sales tax increases the price of goods and services, which can be a burden for consumers. This can lead to reduced spending and a decrease in the overall consumption of goods and services.


Consumption sales tax is an essential component in the government’s effort to collect revenue to fund public services. It is a popular means of taxing goods and services consumed by consumers and is implemented in almost all states in the United States. The system has its benefits, such as high revenue generation, promoting savings, and creating an equitable tax system, but it also has its drawbacks, such as being regressive, reducing demand and increasing prices.

Overall, the consumption sales tax system is an important means of taxation and will continue to be an essential component of the United States’ tax system for years to come.

The first state to enact a state sales tax was West Virginia. In 1921, West Virginia was the only state to enjoy revenue from a state sales tax. In fact it would be eight years before any other state enacted a state sales tax. Currently, forty five states impose both a state sales tax and a use tax. Sales taxes are usually assessed at the point of purchase of an item, or at any point during the manufacturing of that item.

State sales tax is often paid at several levels during the production of any item and the sales tax rates will vary depending on the state where the purchase is made. Sales tax rates also apply to certain services. A use tax is a tax paid for the use, storage or consumption of an item purchased in another state.

Sales taxes, or consumption taxes, are a taxes placed on the purchase of goods or services. While each state may have different sales tax rates, the state sales taxes are not based on residency. For example, a person from Florida that makes a purchase in New jersey, is still expected to pay New Jersey state sales tax rate  on that item. In fact, they would pay the New Jersey sales tax rate when they bought the items in New Jersey. When they took the items home to Florida, they would be expected to pay a use tax, which is a tax on items, used, consumed or stored in a  state, other than the one in which it was purchases.

In fact, there are lawsuits which involve state sales taxes, fees and interest on taxes that state governments believes are owed based on records obtained from online retailers. Excise taxes are also a form of sales tax. However, consumers may not be aware of this type of tax as it is often already included in the price of an item, so the sales tax rate is not obvious to consumers.

For example, an individual that purchases bottle of liquor, will likely note the state sales tax. Yet, they have likely paid sales tax on the excise tax that is already imposed on that item. An excise tax is imposed on a certain volume of an item. Liquor may be taxed on a per liter basis. The consumer pays a sales tax on the total price of that liquor, which already includes other taxes.

Sales tax is sometimes paid on the total cost of an item, which can already include other taxes. The lower and middle class often pay a larger percentage of their income towards sales tax. The tax reform movement believes that sales taxes, as they are currently implemented, are unfair. Sales taxes can place an unequal tax percentage on the lowest income families. The rich pay a significantly lower percentage of their income towards sales taxes. Sales tax rates are often unfair because they place unequal tax burdens on taxpayers, as sales tax rates relate to individual salaries.