States with no sales tax: What you need to know
Did you know that there are states with no sales tax? Did you also know that some no sales tax states actually have sales tax? Or that businesses located in states with no sales tax can be required to collect and remit sales tax in other states?
What states have no sales tax?
There are five states with no general statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. These are sometimes referred to as the NOMAD states (“N” for New Hampshire, “O” for Oregon, and so forth).
Which no sales tax states have a sales tax?
Although none of the NOMAD states have a general statewide sales tax, select sales in each state are subject to tax.
Alaska allows local sales taxes. More than 100 local governments in the Last Frontier levy a local sales tax on certain transactions. For example, there’s no sales tax in Chicken, Alaska, but there’s currently a 5.5% local sales tax in the town of North Pole. Rates vary by location and, in certain localities (e.g., Nome), by the time of the year.
Delaware imposes a gross receipts tax on the sale of certain goods and services. The gross receipts tax is a tax on the total gross revenues of a business, regardless of their source. It’s levied on the seller of goods or services, rather than on the consumer.
Montana allows certain communities to levy a local resort tax, currently capped at 3%. A type of sales tax, the resort tax applies to lodging services; food and beverages sold by bars, restaurants, and similar establishments; and goods and services sold by destination recreational facilities like ski resorts. Luxury products sold in areas with a resort tax are also subject to the tax. Resort areas with a local resort tax include Big Sky, Whitefish, and West Yellowstone.
4. New Hampshire
New Hampshire imposes a meals and rooms (rentals) tax upon patrons of restaurants and hotels or other facilities with sleeping accommodations in the state. The tax applies to rooms and meals costing 36 cents or more. Like a general statewide sales tax, the New Hampshire meals and rooms tax is imposed on the customer but collected and remitted by the business operator.
Oregon has had a bicycle excise tax since January 1, 2018; the flat $15 bicycle excise tax is collected by the retailer at the point of sale, so it feels like a sales tax. There’s also a vehicle use tax in Oregon.
Why businesses in states with no sales tax can be required to collect sales tax in other states
There are several ways for businesses to develop, sales tax nexus, an obligation to collect and remit sales tax. And yes, businesses based in Alaska, Delaware, Montana, New Hampshire, and Oregon can establish sales tax nexus with states that have a sales tax.
Physical presence in a state will give you an obligation to collect that state’s sales tax
One of the most common ways for a business to establish nexus is by having a physical presence in a state.
Delivering goods into another state in your own vehicle can give you physical presence nexus with a state, as can sending employees into a state for a trade show or other purpose. Employees working remotely from a state with a sales tax can also trigger sales tax nexus for their employers.
And consider this: According to the Delaware Division of Revenue, “It is our unpublished opinion with respect to services provided via the Internet, that such services are determined by the location of the server or mainframe from which such information was accessed.” Thus, remote businesses that sell certain internet services to consumers in Delaware may be liable for Delaware’s gross receipts tax, This is similar to what Washington state does for business and occupation (B&O) tax.
So, businesses located in NOMAD states need to understand, pay attention to, and if necessary, comply with physical presence nexus laws. But physical presence isn’t the only way for a business to trigger sales tax nexus with another state.
Selling goods or services to customers in a state with a sales tax can give you nexus with that state
Though physical presence in a state establishes sales tax nexus, as noted above, physical presence in a state is no longer requisite because of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (June 21, 2018) as well as subsequent state action. Remote businesses can now establish nexus through their economic activity in other states. Basing a remote sales tax obligation on economic activity is known as economic nexus.
To help reduce the burden of economic nexus on remote sellers, all states provide an exception for businesses selling under a certain threshold. Economic nexus thresholds vary by state. For example:
● California’s threshold is $500,000 in total combined sales of tangible personal property delivered into the state in the current or previous calendar year, including nontaxable sales
● Florida’s threshold is $100,000 in taxable sales of tangible personal property in the current or previous calendar year
● The threshold in Illinois is $100,000 in cumulative gross receipts from sales or 200 separate transactions in the current or previous calendar year
You can find state-specific details in our state-by-state guide to economic nexus laws.
So, businesses located in states with no sales tax that sell to consumers in other states need to understand, pay attention to, and if necessary, comply with economic nexus laws. There’s an economic nexus law in all 45 states with a sales tax, plus the District of Columbia, Puerto Rico, and a growing number of local taxing authorities in Alaska.
This construction with "or" is a little confusing here because it makes it sound like "economic nexus" is something else entirely. And yet, "nexus through their sales to consumers in other states" is not really the definition of economic nexus, so they're not synonymous. I guess I just find this sentence potentially confusing.
How states with no sales tax deal with online sales tax
The states with no sales tax have responded to Wayfair and online sales tax requirements differently.
Some Alaska localities tax online and mail-order sales
Because so many local governments in Alaska levy a local sales tax, the response to Wayfair in the Last Frontier has been quite different from the response in other NOMAD states.
In 2019, the Alaska Municipal League created the Alaska Remote Seller Sales Tax Commission (ARSSTC) to enable local governments to take full advantage of the Wayfair decision and economic nexus, while minimizing the sales tax burden on remote sellers. Some jurisdictions in Alaska started taxing remote sales in early 2020, and more do so every year. As of this writing, 51 local governments in Alaska are members of the ARSSTC.
The ARSSTC helps streamline sales tax collection and remittance for remote sellers required to collect and remit local sales taxes in Alaska by providing a single filing platform for member communities, notifying registered sellers of new member jurisdictions and sales tax rate changes, and more.
Delaware admits online sales taxes exist
The Delaware Division of Revenue website notes that internet sales tax is a hot topic and that “some states have enacted legislation and/or issued regulations concerning sales tax for businesses operating over the Internet.” That’s about it.
Montana and Oregon advise businesses to comply with applicable online sales tax laws
Tax departments in Montana and Oregon have advised resident businesses to comply with applicable economic nexus laws in other states.
Shortly after the Wayfair decision, the Montana Department of Revenue suggested online retailers in Big Sky Country “seek competent legal advice on how to proceed with collecting and remitting sales tax for sales tax states.”
Likewise, the Oregon Department of Revenue said, “The Wayfair decision does affect Oregon businesses selling products online to buyers in a state … that requires online retailers to collect sales tax.” It recommended Oregon online retailers contact states where they have customers, “or seek legal advice on how to proceed with collecting and remitting sales tax.”
New Hampshire goes down swinging
New Hampshire started preparing for a fight even before the Supreme Court issued its Wayfair decision. Then, in July 2019, Governor Chris Sununu signed legislation requiring other states to “provide advance written notice to the New Hampshire Department of Justice before imposing a sales or use tax collection obligation on a remote seller from New Hampshire.” The measure also required states to reimburse New Hampshire businesses for the cost of remote sales tax compliance.
You can still find the Reporting Out-of-State Sales Tax Requests for NH Businesses page on the New Hampshire Department of Justice website, but other states don’t seem to be taking the requirement seriously. In February 2022, Law360 reported that “states have yet to provide the New Hampshire Department of Justice with the notice required under law of any intent to collect sales and use taxes from state businesses.”
If you’re located in a no-sales-tax state but sell to residents of states with a sales tax, you shouldn’t simply ignore sales tax. You may not have a sales tax obligation in the states where you have customers. Then again, you might. Our free economic nexus risk assessment can help you find out.
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