States without sales tax

Taxes aren’t a favorite topic among business owners or anyone for that matter—unless you’re the IRS.

While state sales tax can result in additional cost being tacked on to a purchase, it also means more work for business owners. For instance, you need to get a sales tax license and stay current on the sales tax rate for your state or states of business. Otherwise, you risk hefty fines.

Wouldn’t it be great if there were states with no sales tax? Well, as luck would have it, there are. Currently, there are five states that do not have state sales tax. While you may not be in one of these states right now, avoiding a sales tax could be a nice perk for those of you considering a move. Read on to see which five states have no sales tax.

Which states don’t have sales tax?

There are five states without sales tax:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

An easy way to remember which states have no sales tax is using the NOMAD acronym—New Hampshire, Oregon, Montana, Alaska, Delaware.

In each of these states, there are no state-level sales taxes. But that doesn’t make them entirely tax-free. You still need to consider property taxes before you uproot your business and move as property taxes can be a huge cost when it comes to your home and business. So before you plan your big move, read over this list and see which states have the best balance of tax rates for your situation.

Alaska

Alaska does not have a statewide sales tax—or state income tax for that matter—because the state collects so much funding from oil production revenues (like Texas). While Alaska does not have a state-levied sales tax, that doesn’t necessarily mean no sales taxes are paid.

Instead of a statewide rate, there are many local municipalities and boroughs that impose their own sales tax. This is because only a portion of the revenue the state brings in is from oil production and other activities are shared with these local governments. Sales tax rates in Alaska can range from 1% to 7%, but the typical tax rate is between 2% and 5% for most jurisdictions.

Additionally, some of these local jurisdictions administer the local tax only part of the year, charging higher rates during popular tourist seasons. For example, in Nome, Alaska, a 7% seasonal sales tax is levied on all sales and rentals of goods and services made in the city during the months of May, June, July, and August, while a 5% sales tax is levied all other months of the year.

At the end of the day, while there is no state-level sales tax in Alaska, there are plenty of local sales taxes, and the average property tax is 1.04% .

It’s also important for business owners to note that there are other taxes that may impact how affordable it is to operate in Alaska, including:

•  Corporate income tax of up to 9.4%—only applicable to C corporations
• Excise taxes on the sale of items like $0.08 per gallon of gas and $12.80 per gallon of liquor
• Capital gains tax as high as 25% in some municipalities—applies if you sell your business

Delaware

Delaware does not have a state sales tax either. Instead, Delaware collects income taxes as well as a number of other taxes from businesses, which makes up for it. Property taxes are also collected by cities to help fund projects and services that improve and protect the community. While property taxes vary from jurisdiction to jurisdiction, the average property tax in Delaware is 0.43%.

As a Delaware business owner, you may also have to pay:

• Gross receipts tax—0.0945% to 1.9914%, depending on the business activity
• Corporate income tax of up to 8.7%—only applicable to C corporations
• Excise taxes—$1.60 per 20 cigarettes, $0.23 per gallon of gas, etc.
• E911 fee of $0.60 per transaction that applies to any prepaid wireless service in the state

Montana

Montana, known for its mountains and often called “Big Sky Country,” is another state that does not have a state sales tax. Montana doesn’t have local sales taxes, either. However, it makes up for it with other taxes, including natural resource taxes, personal income taxes from individuals and businesses, tourism-related taxes, and property taxes. That said, Montana property taxes are fairly low, averaging 0.84%. Additionally, certain communities and areas that meet specific population and economic conditions can implement a resort tax of up to 3%.

Other Montana taxes business owners should keep in mind include:

• Corporate income tax of 6.75%—only applicable to C corporations. If your business’s sales volume does not exceed $100,000 in Montana, you can instead pay 0.5% tax on gross sales.
• State lodging and facilities sales and use tax of 8%—applies to hotels, campgrounds, dude ranches, etc. Since this tax only applies to lodging, it’s not considered a general sales tax, which means Montana is still considered a no sales tax state.
• Excise taxes on certain goods and services, including $0.33 per gallon of gas
• Public contractor’s gross receipt tax of 1%

New Hampshire

There’s no sales tax in New Hampshire—not even in individual municipalities—where the official state motto is “Live Free or Die.” But you will see meals and room tax on your bill if you are dining out, staying in rented accommodations, or renting a motor vehicle in the state. The New Hampshire meals and rooms tax rate is 9%, as is the vehicle rental tax. The property tax is 6.3%, the second highest in the United States.

New Hampshire business owners should also be aware of the following taxes:

• Dividends and interest tax of 5%
• Business profits tax of 7.5%—unless you have less than $50,000 in gross receipts
• Business enterprise tax of 0.6%—may vary slightly depending on revenue estimates

Oregon

Oregon does not have a sales tax, however, the state does have some of the highest income tax rates (as high as 9.9% for the top tax bracket in 2020). While there is no statewide sales tax, municipalities are allowed to set their own local sales taxes. Some cities also have a food and beverage tax that applies to the sale of prepared food and beverages. The state also has a bottle deposit fee and an E911 fee, which is a $0.75 tax applied to any device capable of dialing 911. These fees are charged to consumers of certain canned or bottled beverages and prepaid calling cards. The fees help support recycling initiatives and the E911 statewide call system. The average property tax is 0.87%.

When considering operating your business in Oregon, some taxes you should be aware of are:

• Corporate income tax rate of 6.6%—applicable to earnings of $1 million or less
• Corporate Activity Tax of $250 plus 0.57% on commercial activity over $1 million
• Minimum excise tax of $150

How does not having sales tax impact business owners?

There are several ways that operating in a state with no sales tax can impact your business:

• Fewer tax responsibilities to keep track of: If the state has no sales tax at all, that’s one less thing you have to worry about. You don’t have to worry about collecting sales tax on each transaction or making sure all sales tax is paid to the state.
• Simplified operations: When sales taxes change, you need to be on top of it. This means you’ll need to reprogram sales tax calculations, adjust prices, etc., as needed, to make sure you’re collecting the correct amount of tax. Without state or local sales tax, you don’t need to worry about this. It also means you don’t need to keep track of which item certain taxes are or aren’t applied to, which can take up administrative time.
• Lower tax obligation: Even though the cost of sales tax is generally passed on to the consumer at the time of purchase, it’s still one less thing your business is financially on the hook for when tax season rolls around.
• Reduced overhead: The administrative time, legal consulting, and other time costs of managing state sales tax are no longer necessary if you live in a state with no sales taxes.

What no sales tax means for consumers

For states that have no sales tax whatsoever, this means tax-free shopping for consumers. In a no-sales-tax state, you can purchase products for their sticker price, without those pesky taxes—which can really add up on big purchases and shopping trips—driving up your bill. Even if you live in a state that doesn’t have sales tax but your city does have a local sales tax, you’ll still pay less than you would at the combined tax rate. Either way, it’s a win.

Same goes for traveling. So if you’re visiting one of these states, get ready to cash in on some tax-free shopping while you can.

States with low sales tax rates

There are also plenty of other states with low sales tax rates. Not to mention, some of these states have decent property tax rates, making them even more appealing than some of the NOMAD states, depending on the kind of area you want to live, work, or operate your business in.

Colorado

Colorado, land of great skiing and beautiful mountains, has a low average sales tax rate of 2.9%. However, it does have a higher cost of living than most of the United States, meaning you’ll still have to pay a pretty penny to live and work there. The average property tax is 0.6% and there is a flat income tax rate of 4.63%, which also applies to businesses.

Louisiana

While Louisiana, Alabama, Hawaii, South Dakota, Georgia, and Wyoming all share a 4% sales tax rate, Louisiana takes the cake for having the lowest property tax rate, with an average of 0.18%. Louisiana corporate income taxes range from 4% to 8%, depending on net income, while tax rates for pass-through entities range from 2% to 6%.

New York

New York shares the same 4% sales tax rate as Louisiana and company, but has the added perk of being the location of one of the largest business hubs in the world, New York City. While prices in the city may be out of reach for many small business owners, the low sales tax rate and proximity to such a huge business hub could make it appealing to startups. The average property tax for New York residents is 1.23%, but given the high property values in much of the state, that can add up to a pretty high property tax bill. This makes it a great place for real estate investors, though.

North Carolina

North Carolina has more than just beautiful beaches. It has the low sales tax rate of 4.75% and property taxes that fall into the lower half of those in the United States. The state income tax rate is roughly 5%, making North Carolina an appealing spot for those wanting a coastal location without the high cost of New York. The average property tax rate in North Carolina is 0.78%.

States with high tax rates

We’ve covered those at the low end of the tax rate spectrum. But what about states with higher state sales taxes? According to Tax Foundation, the following 10 U.S. states have the highest statewide sales tax rates:

1. California: 7.25%
2. Indiana: 7%
3. Mississippi: 7%
4. Rhode Island: 7%
5. Tennessee: 7%
6. Minnesota: 6.88%
7. Nevada: 6.85%
8. New Jersey: 6.63%
9. Washington: 6.5%
10. Kansas: 6.5%

Where combined rates are considered, Tennessee holds the highest sales tax, at a rate of 9.75%, followed by Arkansas at 9.53% and Louisiana at 9.2%.

Why is it important that business owners are aware of state sales tax?

As the business owner, it is your responsibility to fully understand and comply with tax laws. Otherwise, you could be facing dreaded audits, fines, or other penalties for now fulfilling your tax obligations.

In some cases this is easier said than done. It may be challenging to keep track of sales tax rates because sometimes rates and jurisdictional boundaries can change without warning. This means retailers must be vigilant about keeping up with the latest requirements.

Even if the state you’re located in doesn’t have a statewide sales tax, your small business may still have the obligation to collect local sales taxes or other similar types of taxes in these states, especially if you’re an online retailer that sells to customers in other states.

All in all, it boils down to the fact that you’re on the hook for paying these taxes in full.

How can you keep track of state sales tax?

To keep your business in good standing, it’s essential that you remain aware of which sales tax may apply to you and ensure that you pay accurately. But how can you do that?

One of the easiest ways to keep track of sales tax obligations is to use QuickBooks. With QuickBooks, you get automatic sales tax calculations based on type of product or service, location, date, and customer. This makes it easy for you to remain in compliance by taking out the guesswork (and stress) of trying to keep tabs on all the different rules of taxation. You’ll also get a Sales Tax Liability Report, which shows how much you owe.

If you do find yourself in trouble with your state tax agency or IRS, it could be helpful to consult a tax attorney who can help you negotiate repayment and resolve tax debt.

Understanding combined state and local sales tax

When trying to determine your tax obligation, one important thing to keep in mind is combined state and local sales tax. Combined state and local sales tax is exactly what it sounds like, the local tax rate added to the state sales tax rate, which gives you the total sales tax rate you’re responsible for charging on each purchase.

For example, let’s say that you operate in a state with 5% statewide sales tax and the local sales tax is 2%, then the total sales tax you’re required to collect is 7%. On the other hand, if your state has no sales tax and the local jurisdiction you operate in doesn’t have sales tax either, then your tax rate is 0%—meaning you’re not obligated to charge or pay any sales tax.

When considering sales tax obligations, you also need to consider local sales tax, which drives up the overall state sales tax rate. A good example of this is New York. It has a fairly low overall state tax rate, but in the highest taxing localities, combined sales tax can be up to 8.52%.

Exemptions from state sales taxes

It is important to note that sales tax isn’t applied to every purchaser or every item. There are specific exemptions from sales tax you should be aware of.

Some items that are typically tax-exempt include medical supplies, non-prepared food items, and clothing, in some cases. Virginia, Vermont, and Pennsylvania don’t charge sales tax on nonprescription drugs either. Types of organizations that may be exempt from sales tax include nonprofits, education institutions, government agencies, and more.

However, keep in mind that there are exceptions to the rule, like Arizona and Idaho, that charge local tax on groceries—Idaho does have a tax credit to make up for this, though. But don’t worry, QuickBooks can also keep track of state-to-state exemptions for you.

State sales tax is just one aspect of your overall tax burden

While you understandably want to avoid high sales taxes—whether as a business payer or an individual taxpayer—it’s important to consider the whole picture to gauge the tax burden of a state. This includes state sales tax, state income taxes, and state property taxes, as well as local taxes. What good is a lower rate on sales tax if you’re paying a high income tax rate that’s a huge burden to your business?

When considering where to live or operate your business—whether in Utah, Illinois, Maine, Missouri, or anywhere else in the United States—keep in mind the big picture and don’t forget there are ways to save on your tax return, so research deductions and credits in your state. Each state has its pros and cons—like Florida, which has a lot of policies that benefit retirees, and Texas, which has no state income tax—only you can decide what will most benefit your business. After all, 45 states and the District of Columbia have sales taxes, but businesses still operate successfully in all of them.