Sales tax was first implemented in 1932 by Mississippi. Once Mississippi took the legislative leap, 44 other state governments also opted to initiate state sales tax, with the last state, Vermont, joining the group in 1969. The driving force behind states choosing to adopt sales tax was often to help finance public services, according to information on the U.S. Department of Treasury website.
Today, the original 45 states continue to implement sales tax to finance services –though state sales tax rates vary — whereas the remaining five have other ways to gather state revenue. Here’s what you need to know about the states that don’t charge you sales tax.
States Without Sales Tax
Although some of the states on this list allow localities to charge a sales tax, none of the states impose a statewide sales tax. Amazingly, you can figure out how to avoid sales taxes in the following states:
- New Hampshire
See how these states make up for the lack of sales tax so you’ll know if you should plan a shopping spree or not.
Alaska does not have a statewide sales and use tax, however, some localities throughout the state impose a sales tax. Adak, for example, imposes a general 4-percent sales tax, but only 2 percent on raw fish. North Pole also requires a 4-percent general sales tax with an 8-percent bed and tobacco tax and a 5-percent tax on alcohol.
Alaska also has no income tax because the state government has substantial income from oil and mineral royalties. The state has so much income, in fact, that it makes annual payments to residents.
Find Out About: Tax-Free Weekends in Every State
Delaware doesn’t have a state sales tax, nor do any localities impose a sales tax throughout the state. The state does, however, impose a gross receipts tax on total business income.
The tax applies to all of the business revenues, including goods and services, and is calculated without any deductions for the costs of the goods sold, raw materials or costs for employees. The type of business influences the tax rate and ranges from 0.1037 percent to 2.0736 percent.
Montana also has a 0-percent sales tax rate across the state and does not allow localities to impose local sales taxes. Resort taxes, however, are an exception. Localities can impose resort taxes at a rate of up to 3 percent.
The resort tax applies to all goods and services — except resold goods — offered within the resort community. Several communities and resort areas, including Big Sky, St. Regis and Wolf Creek, have imposed the maximum 3-percent resort tax.
New Hampshire doesn’t calculate sales tax in any location across the state, but it does impose a business profits tax. The business profits tax applies to all income from business operations within the year, which is currently taxed at 8.2 percent.
Also, certain items, like tobacco products, are also taxed. The tax rate on 20 cigarettes is $1.78 per pack, and a tax rate of $2.23 applies to packs containing 25 cigarettes. For other tobacco, the tax is 65.03 percent of the wholesale sales price.
Oregon is the fifth and final state with 0-percent state tax rates on transactions within the state. For Oregon businesses that purchase inventory out-of-state, Oregon offers an Oregon Business Registry Resale Certificate that businesses can submit to other states to be exempted from that state’s sales tax as a reseller. But there’s a caveat: Other states aren’t required to accept it.
Most of Oregon’s state revenues come from personal income taxes, and secondarily from corporate taxes. The remainder of the state’s revenues come from cigarette taxes, estate taxes and the liquor apportionment transfer.
States Have to Make Money
Regarding sales tax by state, some of the states on this list don’t allow any sales taxes, but they still have to collect revenue in other ways for projects and services. So even though you might not have to pay sales tax, there’s a good chance you’ll end up paying some type of tax to generate funding for the state.
Up Next: 7 States With No Income Tax