States With No Sales Tax

Zamp Learnings:

• Alaska, Delaware, Montana, New Hampshire, and Oregon have state laws that forego state sales tax.
• Of those five states, Alaska is the only state allowing localities to impose local sales tax.
• While you don’t have to charge or remit state sales tax in those five states, you may be responsible for collecting other tax types, such as excise, resort, or local option taxes.

Sales tax is complicated because each state has different tax rates, laws, and collection rules. For example, five states do not even have statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.

While these states may lack a sales tax, other taxes, such as tourism and excise taxes, may apply to certain transactions in those states.

We’ll discuss this and more in the sections below.

What Is Sales Tax?

Sales tax is an indirect tax imposed on goods and services, with taxability varying from state to state. The tax is a percentage of the sales price, usually between 4% and 8%, depending on the state.

US sales tax is a pass-through tax that is paid by the buyer at the point of sale on an item or a service and later remitted by the seller to the state.

How Does Sales Tax Work?

Businesses that sell taxable products or services collect and remit sales tax for the state in which the transaction occurs.

You’ll need to collect sales tax if:

• Your business has sales tax nexus in a state,
• The products or services you sell are taxable in that state, and
• You’re not a third-party marketplace seller.

Learn more about product taxability and filing sales tax in the video below.

What States Have No Sales Tax?

In the US, five states do not have a statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. Collectively, these states are sometimes referred to as “NOMAD states.”

Do Businesses in NOMAD States Have to Pay Other Taxes?

While the NOMAD states do not impose a state sales tax, companies may have other tax obligations, such as paying a gross receipts tax or collecting local option taxes.

Alaska

Alaska does not have a statewide sales tax, but some municipalities do have a local sales tax that applies to certain goods and services. One-hundred and seven municipalities levy a local sales tax, ranging between 1% and 7%. For example, Juneau, the capital city of Alaska, has a 5% local sales tax, while Anchorage has no sales tax at all.

Delaware

Instead of imposing a state sales tax, Delaware imposes a gross receipts tax on businesses. This tax is levied on the seller of goods or services rather than on the consumer. The tax applies to a company’s total gross revenue at a rate of 0.0945% to 0.7468%, depending on the business activity.

Delaware also has a corporate income tax of 8.70%.

Montana

Montana does not have a statewide sales tax, but some cities and counties have a local option sales tax. This regional sales tax, often called a resort tax,  applies to goods and services sold by lodging and camping facilities, restaurants, and other similar establishments in resort areas with a population of less than 5,500 residents. The resort tax cannot exceed 3%.

New Hampshire

While New Hampshire does not have a sales tax, certain transactions will be taxable under the Meals and Rooms (Rental) Tax. The 8.5% tax applies only to taxable meals, room rentals, and motor vehicle rentals.

New Hampshire also has a Business Enterprise Tax, which is assessed on the taxable enterprise value tax base. This is the sum of all compensation paid or accrued, interest paid or accrued, and dividends paid at a 0.55% rate for taxable periods. The filing threshold for this tax is adjusted biennially.

Oregon

Although there’s no statewide sales tax in Oregon, the state does charge a Corporate Activity Tax to businesses that have more than $1 million of taxable commercial activity in the state. This tax does not apply to items excluded from the definition of commercial activity.

Understanding Your Sales Tax Obligation in Other States

Conducting business in any of the other states can create a sales tax nexus. This is a term used to describe when a retailer has an economic or physical connection with a state that requires them to collect sales tax from buyers in that state.

What to Know About Economic Nexus

States used to rely solely on physical presence to establish nexus, but e-commerce and remote sales changed the landscape of commerce.

In the Supreme Court case of South Dakota vs. Wayfair, the Court ruled that states could impose sales tax obligations on out-of-state sellers solely based on their economic presence within the state. This means states can assert taxing authority over remote sellers, regardless of a seller’s physical location.

There are two criteria for economic nexus in most states:

• Sales revenue thresholds: Economic nexus is triggered by the sales revenue generated in a specific state during the past calendar year or the previous twelve months, depending on the state. The exact threshold varies by state and can be as low as $100,000 (like in Florida) or as high as $500,000 (like in California).
• Transaction volume: Economic nexus can also be triggered by the mere number of transactions in a state. Not every state uses transaction volume to trigger nexus, but those that do generally have a threshold of at least 200 transactions.

What to Know About Physical Nexus

Nexus is also created when you have a physical presence in a state, known as physical nexus. When you have a physical nexus in a state, you must register for, collect, and remit sales tax regardless of the number or the value of the sales you make in that state.

Specific events that may create physical nexus in a state include:

1. You have an office, retail outlet, or other place of business in the state. 
2. You have an employee located in the state.
3. You have personal property located in the state, such as real estate, warehouses, equipment, or inventory. 

Best Practices for Tax Collection and Filing

Filing sales taxes can be complex depending on your sales volume and how many states you are required to file in. When you receive your sales tax license from a state you do business in, you’ll also receive your sales tax filing frequencies and due dates.

These are based on your business’s sales volume and are typically filed monthly, quarterly, semi-annually or annually. Each state has its own filing deadlines and rules. For example, in New York, sales tax filing quarters start on March 1st, June 1st, September 1st, and December 1st.

Automating Sales Tax Filing and Compliance

Understanding the complexities of sales tax filing and compliance can be overwhelming for business owners, especially if you operate in multiple states or if you sell across multiple channels. You not only have to make sure you are remitting the correct amount of sales tax to each state you have nexus in but also that you are filing each form on time.

Sales tax software is the best way to ensure your business runs smoothly. We not only manage changing sales tax rates and requirements but we also automate sales tax reporting. This ensures timely and correct filing, which minimizes penalties associated with late submissions or incorrect tax rates.

Using our automated solution also:

• Improves accuracy: Having automated sales tax reporting ensures correct tax rates are applied to all transactions.
• Increases efficiency: Tax automation software handles the calculating and filing process for you.
• Ensures you’re in compliance: An automated sales tax solution keeps your business up to date with changing tax laws and rates.

Having an automated sales tax solution can make your life easier and bring you peace of mind. As the best-automated sales tax software, Zamp also offers API integrations that work with your existing platforms and processes. This allows you to get the scalability and support you need for your business while giving you peace of mind.

The Bottom Line

Each state makes its own laws regarding how much to charge for sales tax. Alaska, Delaware, Montana, New Hampshire, and Oregon don’t have statewide sales taxes but have other taxes that businesses or residents will be subject to paying.

If you’re a business located in the NOMAD states, you shouldn’t ignore the topic altogether because you may owe sales tax in other states depending on your nexus.

Having an automated sales tax solution like Zamp helps ensure you are paying the correct amount of sales tax and are in compliance with each state’s regulations.

Zamp is a fully-managed sales tax solution that eliminates the need for sellers to learn, manage, or touch any part of the sales tax process. Our managed solution includes support from dedicated onboarding specialists, accurate tax calculations, management of your business’s registrations, reporting, and filing requirements, and proactive tracking of your account. Want to learn more? Book a call today.

States Without Sales Tax: FAQ

What is the most friendly tax state?

There are several states that are friendly when it comes to taxes, including Alaska, Delaware, Montana, New Hampshire, and Oregon (also referred to as the “NOMAD” states) which have no statewide state sales tax.

Which US states have the highest sales tax rates?

California has one of the highest sales tax rates in the nation at 7.25%. After California, four states tie for the second-highest sales tax rates at 7% — Indiana, Mississippi, Rhode Island, and Tennessee.

Which states have low sales tax rates?

The state with the lowest sales tax rates is Colorado at 2.9%, followed by Alabama, Georgia, Hawaii, New York, and Wyoming at 4%.