5 states without sales tax: Everything you need to know

Collecting and paying taxes aren’t a favorite topic among businesses. State sales tax can mean extra time and work for business owners. 

If you operate in a state that requires sales tax, you need to get a sales tax license and stay current on the sales tax rate for your state. Otherwise, you risk hefty fines.

However, some states don’t collect sales tax. Currently, five states do not have state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. 

But that doesn’t make them entirely tax-free. We’ll look at the five states that don’t have a sales tax rate but highlight other tax rates you need to know: 

• 1. Alaska
• 2. Delaware
• 3. Montana
• 4. New Hampshire
• 5. Oregon
• Benefits of NOMAD states
• States with low tax rates
• States with the highest tax rates
• Why you need to know your state sales tax rate

Let’s dive into each of the five states that have no sales tax:

1. Alaska 

Alaska does not have a statewide sales or state income tax. However, many local municipalities impose their own sales tax. Other taxes may also impact how affordable it is to operate in Alaska, including:

• Corporate income tax rate of up to 9.4%
• Local sales tax rates in Alaska range from 1% to 7% 

Note that some of these local jurisdictions administer the local tax only part of the year, charging higher rates during popular tourist seasons.

2. Delaware

Delaware doesn’t have a state sales tax, either. The state makes up for this by collecting income taxes and several other taxes from businesses. As a Delaware business owner, you may also have to pay:

• Gross receipts tax of up to 2%, depending on the business activity
• Corporate income tax rate of up to 8.7%

Cities also collect property taxes 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%.

3. Montana

Montana 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, such as: 

• Corporate income tax rate of 6.75%
• State lodging and facilities sales and use tax of 8%

• On the flip side, Montana property taxes are fairly low, averaging 0.83%.

4. New Hampshire

There’s no sales tax in New Hampshire—not even in individual municipalities. However, businesses operating in the state should also be aware of the following taxes:

• Business profits tax of 7.5%
• Business enterprise tax of 0.55%

You’ll also 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 rentals tax rate is 8.5%.

5. Oregon

Oregon does not have a sales tax, but it does have some of the highest income tax rates. Municipalities in Oregon can also set their own local sales taxes. When considering operating your business in Oregon, some taxes you should be aware of are:

• Corporate income tax rate of 6.6%
• Corporate Activity Tax of $250 plus .057% on commercial activity over $1 million

Some cities also have food and beverage and other local taxes you’ll want to watch out for.

Benefits of NOMAD states

Operating in a state with no sales tax means you don’t need to worry about figuring out sales tax.

Operating in a state with no sales tax can benefit your business, including:

• Generating fewer tax responsibilities: 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 you pay sales tax.
• Simplifying operations: When sales tax rates change, you need to be on top of it. This means not having to worry about sales tax calculations and adjusting prices. 
• Reducing 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.

Doing business in a NOMAD state allows you to save time by not having to calculate and pay sales taxes.

States with low sales tax rates

There are also plenty of states with low sales tax rates. Note that some of these states have lower tax rates, like property taxes, making them more appealing than NOMAD states for certain businesses. Here are the states with the lowest sales tax rates: 

• Colorado: 2.9%
• Alabama: 4.0%
• Georgia: 4.0%
• Hawaii: 4.0%
• New York: 4.0% 
• Wyoming: 4.0% 

There are trade-offs to take note of, however. For example, Colorado has the lowest sales tax rate but a higher cost of living. Also, don’t forget to account for local sales tax rates when considering sales tax obligations.

States with the highest tax rates

Even if your state doesn’t have a sales tax, your small business may still have to collect local sales taxes or similar types of taxes in these states, especially if you’re an online retailer selling to customers in other states and needing to collect internet sales tax.

On the opposite side, several states have much higher tax rates:

• California: 7.25%
• Indiana: 7%
• Mississippi: 7%
• Rhode Island: 7%
• Tennessee: 7%

Here’s a breakdown of the sales tax rates for all 50 states:

Though some of these rates seem low, remember to look at the combined sales tax rate. For example, let’s say that you operate in a state with a 4% statewide sales tax and the local sales tax is 2%, then the total sales tax you’re required to collect is 6% 

A good example of this is New York. It has a fairly low state tax rate of 4%, but some localities have higher sales tax rates than the states.

Why you need to know your state sales tax rate

As a business owner, understanding and complying with tax laws can help you avoid audits, fines, or other penalties. That’s why it’s important to know when and how much to charge for sales tax.

Note even if your state has a sales tax, the state may not collect sales tax on every item. There are specific exemptions from sales tax. Some items that are typically tax-exempt include medical supplies, nonprepared food items, and clothing. 

Types of organizations that may be exempt from sales tax include nonprofits, education institutions, and government agencies. 

Find peace of mind come tax time

To keep your business in good standing, you need to know 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 accounting software like QuickBooks that allows for automatic sales tax calculations according to your type of product or service. This makes it easy for you to remain compliant by taking out the guesswork and trying to keep tabs on all the different taxation rules.