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Study shows Tennessee has highest sales tax

CHATTANOOGA, Tenn. (AP) - A study shows Tennessee's average 9.4 cent tax on every $1 spent is the highest sales tax rate in America.

Opponents of the sales tax say it's most unfair to those least able to pay but others favor the sales tax over a state income tax.

The author of the tax comparison study, Tax Foundation staff economist Kail Padgitt, said an increasing number of states are raising so-called "millionaire taxes" on income of the wealthiest taxpayers and so-called "sin taxes" on cigarettes or beer.

Padgitt told the Chattanooga Times Free Press the foundation is "definitely seeing more movement upward than downward in taxes on the state level, and the most popular seem to be to target particular types of tax groups."

The nonpartisan study group said the average 9.4 cents combined state and local sales taxes for every $1 spent by consumers in Tennessee is nearly 38 percent more than the median sales tax nationwide. By comparison, the combined state and local sales tax rate averages just over 7 percent in neighboring Georgia and 6.15 percent in Alabama.

Although some localities in central Alabama have higher combined rates of up to 11 percent, Tennessee averaged the highest rate among all 50 states. The Tax Foundation said Tennessee derives nearly 57 percent of its tax revenue from sales taxes, third highest among the 50 states.

Critics of Tennessee's reliance upon consumer taxes say it is unfair to the poor and sends consumers to border states to shop.

"Tennessee's sales tax is regressive tax so those that can least afford it have to pay the most," said Samantha Maples, a community organizer for Tennesseans for Fair Taxation, a pro-income tax group. "In addition to being unfair, the sales tax also hurts businesses along our borders and it is simply inadequate to fund our government."

But Drew Johnson, president of the Tennessee Center for Policy Research, said relying on sales taxes is better than using income taxes to fund government.

Tennessee is one of nine states that does not impose a tax on earned income, although the state does have a Hall income tax on dividend income.

"Our sales tax in Tennessee doesn't need to be as high as it is and the government should look for ways to cut spending and waste," Johnson said. "But the sales tax is still the fairest and most responsible way to tax residents of the state. Tennessee is a haven for entrepreneurs because we don't have an income tax."           

Information from: Chattanooga Times Free Press, http://www.timesfreepress.com                      

(Copyright 2009 by The Associated Press.  All Rights Reserved.)