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Highest sales taxes among U.S. cities in Alabama: study

WASHINGTON (Reuters) - Two Alabama cities top a new ranking of U.S. cities with the highest combined state and local sales tax rates, a study released on Wednesday found.

Birmingham and Montgomery, Alabama, have sales tax rates of 10 percent, the steepest in the country, said The Tax Foundation, a conservative tax research group.

Which cities had the lowest rates? They were the only two that had no state or local sales taxes at all: Portland, Oregon, and Anchorage, Alaska, the study said.

Third-lowest was Honolulu, Hawaii, with a 4 percent state sales tax and a 0.5 percent local tax, yielding a 4.5 percent combined rate.

Tied for fourth-lowest were five Virginia cities with 5-percent combined sales tax rates: Virginia Beach, Richmond, Norfolk, Chesapeake and Arlington.

The Tax Foundation, which promotes lower taxes generally, said disparities in sales taxes can motivate shoppers to travel from one jurisdiction to another to avoid high taxes.

"For example, strong evidence exists that Chicago-area consumers make major purchases in surrounding suburbs or online to avoid Chicago's high sales tax rates," the study said.

Chicago's combined rate is 9.5 percent, the nation's third-highest after the two Alabama cities.

Sales taxes can also play a role in business location decisions, according to the foundation.

The group added that its study ranks tax rates alone and does not make adjustments for what items are taxable and what are not. This can vary widely from state to state.

For instance, groceries may be non-taxable in some states, partially taxable in others, and fully taxable in still others. Clothing and business-to-business transactions also vary.

Tied with Chicago with comparatively high combined rates of 9.5 percent were Glendale, Arizona, and Seattle, Washington.

Other cities with rates of 9 percent or more included Phoenix, Tucson and Mesa, Arizona; Memphis and Nashville, Tennessee; and New Orleans and Baton Rouge, Louisiana.

Among bigger U.S. cities, New York came in 14th on the list with a combined rate of 8.875 percent; Los Angeles, 17th at 8.75; San Francisco, 24th at 8.5; Houston, 27th at 8.25; Atlanta and Philadelphia tied for 43rd at 8; Minneapolis, 52nd at 7.775; Denver, 63rd at 7.62; Boston, 91st at 6.25; while Detroit and Washington, D.C. tied for 92nd at 6 percent.

(Reporting by Kim Dixon; Editing by Kevin Drawbaugh and Andrew Hay)

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