States With No Sales Tax

What Is a Sales Tax?

A sales tax is a tax charged on the sale of goods or services. The consumer pays the tax to the retailer at the time of purchase. The seller then remits the taxes to the government.

State and local governments require sales taxes and contribute 29.52% of the total state tax revenue. They vary widely from one jurisdiction to another and depend on the type of goods or services.

Sales taxes are often confused with value-added taxes (VAT), but they are two different types of taxes. Value-added taxes are imposed on the sale of goods or services at each production stage, from the raw materials to the finished product. 

Five States Without Sales Tax

In the United States, sales taxes are imposed at the state and local levels. Forty-five states and Washington D.C. all have some form of sales tax. Below are the five states that do not have sales tax.

Alaska

Alaska does not have a state-imposed sales tax, but some sales taxes are levied in a few local towns. 

Kalifornsky, for example, levies a 3% municipal sales tax. Juneau, the state capital, levies a 5% sales tax.

Even without sales taxes, the state government earns heavily on petroleum revenues, which nearly account for 85% of the state budget

The state also taxes other natural resources, such as timber, fish, and minerals. Additional personal property tax on the local level and corporate tax are implemented to earn revenue.

Delaware

The state of Delaware does not levy a state sales tax on its people or tourists. Also, no localities in Delaware impose any sales taxes. 

However, Delaware charges a gross sellers tax on businesses for the total amount of sales from products and services sold. 

The state relies heavily on moderate income tax returns and corporate income taxes. It has a graduated state individual income tax ranging from 2.2% to 6.6%. Corporate income tax is at 8.7%. 

Montana

Another state that does not have state sales tax is Montana, which is a slightly underpopulated state. However, local areas that are popular with tourists charge local sales tax. 

Montana covers their revenue by implementing heavy individual and corporate income taxes. 

Senate Bill 159 reduced the highest marginal tax rate for individuals, estates, trusts, and pass-through entities from 6.9% to 6.75% on any taxable income over $19,800.

New Hampshire

The state of New Hampshire and any of its localities do not collect sales taxes. Certain goods and services such as rooms, meals, car rentals, and restaurants have excise taxes ranging from 8.5% to 9%. These taxes are to be paid by consumers and collected by the business operators.

The state also assesses a 5% tax on interest and dividend income that exceeds $2,400 annually ($4,800 for joint filers) with a few exemptions.

The state’s property taxes are at an average of $19.26 per $1,000 assessed value in 2021. 

Oregon

No sales taxes are being collected in Oregon at the state and local levels. High income taxes ranging from 4.75% to 9.90% are used to compensate for the absence of sales tax. Some local municipalities can even impose additional local income taxes. Corporate income taxes are at 6.6% to 7.6%.

The state considers property taxes as one of the most important sources of revenue for more than 1,200 local taxing districts. For the fiscal year 2021-2022, its statewide average property tax rate is $17.26 per $1,000 assessed value.

States_Without_Sales_Taxes

State & Local Sales Tax Rates 2022

State_&_Local_Sales_Tax_Rates_2022

Listed above are the state and local sales tax rates for 2022. The state sales tax rate generally ranges from 2.9% to 7.25%, with California having the highest state sales tax. 

Districts from each state charge an additional sales tax. Considering the combined state and local sales tax rates, Louisiana and Tennessee have the highest rate at 9.55%. Apart from the other four states that do not have sales taxes, Alaska has the lowest combined sales tax rate at 1.76%. 

Quick Facts

  • State and local governments require sales taxes and contribute 29.52% of the total tax revenue.
  • Statewide sales taxes are imposed in 45 states and the District of Columbia.
  • Only 38 states collect local sales tax, usually at par or even higher than state rates. 
  • The top five states with the highest sales tax rates after compounding state and local sales tax are Louisiana and Tennessee, both at 9.55%, Arkansas at 9.48%, Washington at 9.29%, and Alabama at 9.22%.
  • Residents of Alaska (1.76%) Oregon (0%) Delaware (0%) Montana (0%) New Hampshire (0%) pay the least in sales taxes overall.
  • The last time state rates changed was in April 2019, when Utah increased from 5.95% to 6.1%.
  • Alaska is the most tax-friendly state, with only a 4.6% state-local effective tax rate.

Final Thoughts

Only five states, Alaska, Delaware, Montana, New Hampshire, and Oregon, do not require consumer sales tax. Instead of sales taxes, they depend on industry revenues and higher property and income taxes. 

Sales tax rates vary across states, and consumers must note that some local municipalities in each state charge an additional local sales tax. 

The different tax rates across states allow consumers to lessen their taxes if they purchase goods and services at the correct location.

FAQs

The states with the least sales tax at 0% are Oregon, Delaware, Montana, and New Hampshire. Alaska follows the list with a sales tax of 1.76%.
The highest sales tax among states is Louisiana and Tennessee, with a rate of 9.55%. Arkansas has the second highest sales tax at 9.48%, Washington is third at 9.29%, and Alabama is fourth at 9.22%.
The most tax-friendly state is Alaska, the least tax-burdened state in 2022, with only a 4.6% state-local effective tax rate.
Oregon, Delaware, Montana, and New Hampshire are the states with no sales tax.
A sales tax is a tax charged on the sale of goods or services. The consumer pays the tax to the retailer at the time of purchase. The seller then remits the taxes to the government. On the other hand, a value-added tax (VAT) is an additional value imposed by sellers on goods or services at every stage of production.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.