States that allow local income and sales taxes cluster into two overlapping groups: about 17 states plus the District of Columbia let cities, counties, or school districts collect their own income tax, and a clear majority of states let localities add a sales tax on top of the state rate. The specific list matters because two people living twenty minutes apart can face noticeably different tax bills depending on which side of a municipal line they land on.1Tax Foundation. Local Income vs. Sales Taxes: Which Is the Better Source
States That Allow Local Income Taxes
Local income taxes exist in a fairly short list of states, with the heaviest concentration in the Midwest and Mid-Atlantic.
Pennsylvania and Ohio stand out for sheer volume. Pennsylvania’s earned income tax applies in most municipalities statewide, with rates running from about 0.5% to 3.6% of gross wages. Ohio’s municipal income tax covers hundreds of cities with rates between roughly 0.5% and 3.0%. In both states, even small towns often have their own rate.1Tax Foundation. Local Income vs. Sales Taxes: Which Is the Better Source
Indiana imposes a county income tax in all 92 counties, with 2026 rates ranging from 0.50% in Porter County to 3.00% in Randolph County.
Maryland makes local income tax mandatory through a piggyback system. Every county and Baltimore City sets a rate that the state collects alongside your state return. For tax year 2026, Maryland’s local rates range from about 2.75% to 3.30% of taxable income, and residents cannot opt out.
Kentucky and Alabama allow cities and counties to charge occupational taxes on wages earned within their limits. The label is different, but the money still comes out of your paycheck.
Michigan allows roughly two dozen cities to impose their own income tax. Detroit charges 2.4% for residents and 1.2% for nonresidents.
Missouri limits local income taxes to Kansas City and St. Louis, both at 1.0%.
New York gives New York City and Yonkers their own personal income taxes on residents, separate from the state tax.
Delaware authorizes Wilmington to impose a 1.25% wage tax on anyone who lives or works in the city.
Oregon takes a different route. Certain transit districts levy a payroll tax on employers based on wages generated within the district, and a statewide transit tax of 0.1% is withheld from individual employees’ wages.
States That Allow Local Sales Taxes
Local sales taxes are far more widespread than local income taxes. The majority of states allow cities, counties, or both to add their own percentage on top of the state sales tax rate, and the combined rate at the register depends heavily on where you’re standing.
Colorado has an average local add-on of nearly 5.0% in 2026, pushing combined rates past 7.9% in many areas despite the state’s base rate of just 2.9%. Colorado is also the notable outlier on collection: roughly 70 home-rule cities administer their sales taxes independently, each with its own tax base, rate, and separate return.2Tax Foundation. State and Local Sales Tax Rates, 2026
Alabama, Louisiana, and Tennessee have large local components that push combined rates above 9% in some jurisdictions.
California starts from a base state rate of 7.25% (which itself includes a mandatory statewide local add-on), and cities and counties can stack additional levies that carry the total past 10% in parts of Los Angeles County.
Texas caps local additions at 2.0% on top of its 6.25% state rate.
New York local portions average 4.54%, putting the combined rate in New York City among the highest in the country.2Tax Foundation. State and Local Sales Tax Rates, 2026
Illinois shows dramatic swings between neighboring towns. Chicago’s combined rate exceeds 10%, while a store a few miles outside city limits might charge two or three percentage points less.2Tax Foundation. State and Local Sales Tax Rates, 2026
States That Allow One But Not the Other
A number of states permit local layering on only one side of the ledger.
Indiana, Kentucky, Maryland, and Michigan authorize local income taxes but not local sales taxes. Florida and Georgia run the reverse pattern, permitting local sales taxes but no local income tax. Pure uniformity between neighboring jurisdictions is the exception in most of the country.
States That Allow Neither
At least eight states prohibit localities from imposing either income taxes or general sales taxes: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Mississippi, and Montana.1Tax Foundation. Local Income vs. Sales Taxes: Which Is the Better Source Five of those are New England states, where centralized tax authority has been the tradition for decades. New Hampshire and Montana also have no general sales tax at the state level.
In these states, rates are uniform across every city and town. Local governments lean more heavily on property taxes and state aid to fund their budgets. For residents and businesses, the practical benefit is simplicity: no risk of a surprise local levy showing up in a paycheck or at a cash register.
Crossing Local Tax Lines to Work or Shop
Local taxes get complicated quickly when you live in one jurisdiction and work in another. The general rule in most states is that income gets taxed where you earn it. If you commute from an untaxed suburb to a city with a 1% earnings tax, the city taxes your wages even though you don’t live there. Many cities charge nonresidents a lower rate than residents, but not all.
Most states that authorize local income taxes provide a credit to prevent double taxation. If you pay local income tax to the city where you work, your home jurisdiction typically reduces your local bill by whatever you already paid elsewhere. The credit is usually limited to the lesser of what you paid to the work city or what your home city would have charged.3Tax Foundation. Do Unto Others: The Case for State Income Tax Reciprocity
State-level reciprocity agreements simplify things for commuters who cross state lines. About 30 such agreements exist across 16 states and the District of Columbia, with Kentucky, Michigan, and Pennsylvania participating in the most. These agreements let you pay income tax only to your home state. One catch trips people up: reciprocity agreements almost never cover local income taxes. You might be exempt from Indiana’s state tax because you live in Ohio, but if you work in an Indiana county with a local income tax, that local obligation can still apply.
Remote Work Across Local Lines
Remote work has made local tax rules harder to navigate. The traditional rule ties tax liability to where you physically perform the work, so a remote worker sitting at home in an untaxed suburb shouldn’t owe income tax to the city where the employer’s office sits. But not every state follows that logic.
A handful of states apply a convenience-of-the-employer test. If you work remotely for your own convenience rather than because your employer requires it, these states tax you as if you were still working at the office. New York, Connecticut, Delaware, Nebraska, New Jersey, and Pennsylvania have adopted some version of this rule.4National Conference of State Legislatures. State and Local Tax Considerations of Remote Work Arrangements The practical effect is that a remote employee working from New Jersey for a New York City employer could owe New York taxes on the full salary, even without setting foot in New York.
At the local level, Ohio provided a vivid example during the pandemic. Emergency legislation allowed cities to keep taxing commuters’ wages as if they were still working in the office, even while those workers sat at home in different municipalities. Courts have pushed back on some of these rules, and the legal picture is still shifting.
Local Taxes You’ll See Even in “No Local Tax” States
Even states that ban general local income and sales taxes let localities impose targeted levies.
Hotel and lodging taxes are the most common. Cities and counties add anywhere from 1% to 7% or more on top of state lodging taxes, often to fund convention centers, transit systems, and tourism marketing. Short-term rental platforms like Airbnb and VRBO have expanded the reach of these taxes; many jurisdictions now require hosts to collect and remit occupancy taxes that once applied only to traditional hotels.
Prepared food and beverage taxes appear in many metro areas, typically adding 1% to 2% to restaurant bills. These often fund a specific project like stadium construction or transit expansion, and they can sunset once the project is paid off or be renewed by voter approval.
Special purpose districts add another layer. These are independent taxing authorities created for a single function such as fire protection, water management, library services, park maintenance, or public transit. They can cross city and county boundaries, and they’re often invisible to residents until the assessment shows up on a property tax bill or utility statement. Individual rates are usually modest, but they add up when multiple districts overlap.
How Local Taxes Interact With the Federal SALT Deduction
Every dollar you pay in local income and sales taxes can potentially reduce your federal tax bill through the state and local tax (SALT) deduction, but only if you itemize. From 2018 through 2024, the SALT deduction was capped at $10,000 per return ($5,000 for married filing separately), a limit that hit hardest in high-tax states like New York, New Jersey, and California.5Internal Revenue Service. Revenue Ruling 25-04, Part I Section 164 – Taxes
The One Big Beautiful Bill enacted in July 2025 raised the cap significantly. For tax year 2025, the SALT deduction limit jumped to $40,000 ($20,000 married filing separately). For 2026, the cap increases by 1% to $40,400 ($20,200 married filing separately). It will continue rising by 1% annually through 2029 before dropping back to $10,000 in 2030. A phase-out reduces the deduction for taxpayers with modified adjusted gross income above $400,000 (single) or roughly $500,000 (other statuses) for 2026.
Whether to deduct state and local income taxes or sales taxes is an either/or choice on your federal return. You can pick whichever gives you the larger deduction, but you cannot claim both.