Average sales tax rate lowest in 45 years

— -- The average sales tax rate that Americans pay dropped last year to the lowest level since 1967 as a shift to tax-free Internet sales and untaxed services keeps eroding the No. 1 source of revenue for state and local governments, a USA TODAY analysis finds.

States and cities are being forced to keep their belts tight because sales tax collections rose only 1.2% last year even though consumer spending climbed 4.7%.

Governments have jacked up sales tax rates in recent years to get more money. But consumers are a step ahead, buying less of what's taxed and using the Internet to save money. The result: higher tax rates covering a shrinking share of purchases.

Americans paid an average 4.27% sales tax rate on purchases in 2011, down from 4.63% five years ago and far below the peak of 5.18% in 1973, according to an analysis of Bureau of Economic Analysis data.

The Internet isn't the biggest reason for the sales tax decline. The primary cause is a long-term shift to buying tax-exempt services rather than taxable goods. Americans today spend more money than ever on medical care, college tuition, health clubs, pet grooming, house cleaning and other services that are rarely covered by the sales tax.

Cars, televisions, books and other taxable items account for just one-third of spending today, down from half in 1970. And much of what's bought — prescription drugs, hearing aids, clothing, food — is taxed at reduced rates or not at all.

Only two states — Florida and Massachusetts — have tried to expand the sales tax to cover most services, says Ronald Alt, head of research at the Federation of Tax Administrators. Both states repealed the law almost immediately after a tax rebellion. No state has dared try since, he says. "Legislators don't want to sit in the barber chair and get an earful on the new haircut sales tax," Alt says.

States want Congress to require Internet retailers such as amazon.com to collect their sales taxes. Now, only businesses that have a physical presence in the state — such as Walmart.com — must collect that state's sales taxes for online purchases.

But opposition to expanding the sales tax to all Internet purchases remains strong. "Let's focus on what's best for the consumer, especially in a high tax state, rather than on protecting antiquated business practices," says Minnesota state Sen. Warren Limmer, a Republican on the tax-writing committee.

Shrinking the sales tax further:

•High rates. As local charges rise, consumers go online and to low-tax states. New Hampshire (no sales tax) has bustling shopping malls along its border with Massachusetts (7% sales tax). Amazon is opening a new 850-employee distribution center in Delaware (no sales tax).

•Deflation. The prices of many taxable goods have plummeted because of imports and technology. Lamps costs 44% less than a decade ago, the BEA reports. Dishes are 30% less.

•Exemptions. California has a 50-page book of exemptions. New Jersey is phasing out the tax on cosmetic surgery. Connecticut taxes clothing, shoes and non-prescription drugs at 6.35% but exempts child car seats, college textbooks, caskets, energy efficient light bulbs and flags.