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Iowa’s Sales Tax Rate Competitive Among Neighbors
Legislative Focus Shifts to Income Tax Reforms
According to The Center Square, Iowa boasts a competitive sales tax rate compared to most of its neighboring states ranking 29th in the country for its combined state and local sales tax rate. According to a report from the Tax Foundation, Iowa‘s state sales tax is set at 6% which is the 17th highest in the U.S. However, the state’s average local sales tax rate is low at just 0.943% making the overall combined rate 6.94%. Among its neighboring states only Wisconsin and South Dakota have lower combined sales tax rates than Iowa. Wisconsin has the lowest combined rate with a state sales tax of 5% and an average local rate of 0.69% placing it 42nd in the nation. South Dakota follows with a combined rate of 6.11% after reducing its state sales tax from 4.5% to 4.2% in 2023. This reduction is temporary and will expire in 2026.
On the other hand, Illinois has the highest combined sales tax rate among Iowa‘s neighbors at 8.8% ranking 7th in the country. Missouri also has a high rate of 8.39% placing it 11th while Minnesota‘s rate is 8.12% ranking 15th. Iowa also imposes a 6% use tax on goods and services purchased out of state where no sales tax was collected. Residents are required to pay this tax on items bought from vendors who do not charge sales tax. This is enforced by the Iowa Department of Revenue. In the 2024 legislative session Iowa lawmakers did not make changes to the sales tax but focused on other tax reforms. They expedited income tax cuts introducing a 3.8% flat tax effective in 2025. Additionally, they decided to eliminate taxes on retirement and inheritance income.
READ ALSO: 3 Easy Steps To Your Tax Refund: Accurate Predictions Inside
(PHOTO: Regional Media News)
Tax Balance Key for Business and Resident Attraction
Furthermore, the Tax Foundation emphasizes that sales taxes should be considered alongside other types of taxes. For instance, Tennessee has high sales taxes but no income tax while Oregon has no sales tax but high income taxes. These differences can significantly impact business decisions and investments. Policymakers are encouraged to consider these factors as they can have immediate effects on the state’s economy. Overall, Iowa‘s competitive sales tax rate combined with recent income tax reforms positions the state favorably compared to most of its neighbors. This balance of taxation is crucial for attracting businesses and residents ensuring Iowa remains an appealing place to live and work.
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