Sales Tax
A consumption tax collected on retail purchases. Many cities levy a local sales tax on top of state and county rates.
How It Works
Local sales tax rates typically range from 0.5% to 3%, stacked on top of state sales taxes. Cities with strong retail sectors (shopping centers, entertainment districts) benefit disproportionately. Sales tax revenue is more volatile than property tax because it rises and falls with consumer spending. The growth of e-commerce has shifted some sales tax revenue from brick-and-mortar cities to online retailers, though the 2018 South Dakota v. Wayfair decision allowed states to collect sales tax on online purchases.
Related Terms
- Property Tax — A tax levied on real estate (land and buildings) based on assessed value. Property taxes are the single largest revenue source for most U.S. city governments.
- Revenue Diversity — The degree to which a city's revenue comes from multiple sources (property tax, sales tax, fees, grants) rather than being concentrated in a single stream.
- Excise Tax — A tax on a specific good or activity — such as hotel rooms, rental cars, alcohol, tobacco, or fuel — rather than a broad sales tax.
About This Definition
This definition is part of the CitySpend Municipal Finance Glossary — 59 terms explaining how city governments fund and manage public services. All definitions are written in plain language for taxpayers, journalists, students, and municipal bond investors.