Which States Have No Sales Tax?
- Jun 24, 2016 | Katherine Gustafson
States with no sales tax? Yes, they exist!
Those lucky residents of Delaware, Montana, Oregon, and New Hampshire never pay sales tax on anything.
Alaska is a fifth state with no sales tax at the state level, though some Alaska municipalities impose retail-level tax. The average sales tax rate in Alaska is 1.69 percent, a far cry from the 9.75 percent rate in effect in some parts of Tennessee (depending on local rates).
These states are able to do this for a variety of reasons. Delaware is able to draw shoppers from neighboring states. New Hampshire has sky-high property taxes to make up for its lack of sales and income taxes. Some of these states receive high taxes from corporations operating in the states -- for example, heavy oil and gas industry investment in Alaska and Montana.
So what if you have nexus in one of the states that doesn’t have sales tax? You get to benefit too, since you don’t have to charge or remit sales tax on any transactions there—this simplifies billing. Except, of course, in Alaska: If the address that gives you nexus is inside an area with local sales tax, you’re on the hook for that.
In addition to states that don’t have sales tax full stop, most states also have multiple sales tax exemptions on a variety of types of products, from tube socks to selected local handicrafts. Most states exempt food, clothing, medicine, and other essentials.
It’s important to keep apprised of tax laws in any state in which you have a physical presence, even those states that have no tax. Tax law changes frequently, and ignorance of new laws is not an excuse the IRS will look kindly on.