30 May 2024
6 min read

States With No Sales Tax

The Impact of No Sales Tax: A Deep Dive into the NOMAD States
Which US states have no sales tax
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Paying sales tax is part of doing business for businesses and consumers. Consumers know to calculate tax into their shopping budgets, and businesses adjust their marketing and sales techniques to account for the added sales tax.

But sales tax isn’t nationwide. Each state is responsible for its own sales tax rates, and some states across the US don’t have a sales tax, opting instead to get revenue from other sources. In this article, we’ll dive into which states don’t have sales tax and how that impacts businesses and consumers. 

The 5 U.S. states with no sales tax

5 States Without Sales Tax

Five states in the US don’t have sales tax. They are referred to as the NOMAD states for the acronym they form: New Hampshire, Oregon, Montana, Alaska, and Delaware.

New Hampshire

New Hampshire doesn’t have a state sales tax on groceries and other retail purchases. The one exception is food for immediate consumption, such as food purchased at fast-food restaurants, which has a 9% tax. New Hampshire also doesn't have a personal income tax. 

Oregon

Oregon doesn’t have a state-wide sales tax. However, it has a Corporate Activity Tax, or CAT, levied on certain businesses based on their commercial obligations within the state.

Montana

Although Montana doesn’t have a state-wide sales tax, a limited number of tourist locations around the state do impose one, which is currently capped at 3%.  

Alaska

Alaska doesn’t have a state-wide sales tax, but individual jurisdictions have the power to impose their own sales taxes. For example, Juneau, one of the state’s biggest cities, has a city sales tax of 5%. The amount of sales tax (if any) varies between states and counties. State sales tax has been a much-discussed topic in Alaska in recent years, so changes may be coming soon. Alaska is also one of the few states that doesn’t have a personal income tax.

Delaware

Delaware doesn’t have a state sales tax, but it does have a Gross Receipts Tax on businesses based on their gross revenue.

Why Do Some States Not Have Sales Tax

The most common reason some states don’t impose sales tax is that they don’t need to. Taxes are a way to collect revenue for a state, but if that revenue can come from other areas, states don’t need to impose a sales tax. Some states’ tax codes are dictated by their state legislature, meaning their governor and state Congress decide on tax rates, while others decide tax issues by a vote. 

In many cases, the lack of sales tax revenue is made up by revenue from income taxes. Oregon, for example, has a high income tax to compensate for its lack of sales tax. For Alaska and Delaware, which don’t have a sales tax or income tax, revenue comes from enticing businesses to the area or other revenue sources, including property and other types of taxes. Delaware, for example, has higher corporate income taxes and taxes for other specialty businesses, which increases its revenue without a sales tax. New Hampshire has a 10% tax on wood, which boosts the state’s revenue. 

It’s important to note that just because a state doesn’t have a sales tax doesn’t mean cities and counties in that state can’t enact their own sales tax. In other states that have a state-wide sales tax, that local sales tax would be added on top. The concept is the same in tax-free states, except the local sales tax is added to a state sales tax of zero. 

Does having no sales tax impact consumers

Does a Lack of Sales Tax Impact Consumers?

Because they don’t have to pay sales tax, consumers living in the NOMAD states tend to be more enticed to shop. Considering the average state sales tax is around 5%, consumers in these states essentially get a 5% discount on every purchase.

Many consumers living in neighboring states will cross the border to shop in a sales tax-less state, boosting the economy and creating more jobs and opportunities. 

Sales tax is a loaded issue. Some people say that it unfairly impacts lower-income households because those consumers spend a larger percentage of their income on items that have a retail sales tax than higher-income families. The burden of retail sales tax is regressive when measured as a share of current income. While not tied directly to removing the state sales tax, NOMAD states can create more tax equality by removing sales tax and increasing taxes on higher-income households and corporations. 

How Sales Tax Impacts Cost of Living

Many factors contribute to the cost of living, but four of the five NOMAD states are in the bottom half of US cost of living rankings, meaning it costs more to live there. Montana has the lowest cost of living of sales tax-less states, coming in the 12th lowest in the country. Delaware is #31, and Alaska is #36. Near the bottom of the list is Oregon at #43 and New Hampshire at #45, meaning that only a handful of other states have higher living costs. 

In states like Delaware and Montana, the dollar stretches further because the cost of living is lower. Adding no sales tax to the mix can benefit consumers even more. However, Oregon, New Hampshire, and Alaska residents may find that their money doesn’t go as far with the higher cost of living, so being able to shop without sales tax can entice people to move to or shop in the state to help their budget. 

NOMAD States Find Other Revenue Sources

While NOMAD states don't impose a state-wide sales tax, it's crucial to remember that the government still requires revenue to maintain smooth operations. All states depend on taxes (in various forms) to fund the majority of their revenue. Without taxes, states don't have money. In most states, revenue generated from sales taxes funds various state programs and services, including education, healthcare, and transportation. In most states, sales taxes bring in billions of dollars of revenue, accounting for around 20% of the state’s total revenue.

States that don’t have sales tax must find other ways to secure that revenue and have their compensatory methods for the lack of state sales tax revenue. They frequently depend on higher business, income, or excise taxes than states with a state sales tax. New Hampshire, for example, collects 63% of its revenue from high property taxes, the most of any state. Montana earns revenue from higher taxes on marijuana, campgrounds, and other hospitality purchases. Known as a business-friendly state, Delaware gets more than one-third of its revenue from corporate taxes. Oregon has increased personal income and corporate taxes to earn a large portion of state revenue.

In addition to no sales tax, Alaska and New Hampshire don’t have personal income taxes. Alaska earns a portion of its state revenue from federal subsidies and grants for gas production, while New Hampshire earns from its high property tax. Both of these states also have a high cost of living compared to other US states. 

The Impact of Sales Tax on the Business Environment 

Aside from impacting consumers, a lack of state sales tax also affects businesses. Businesses in states with sales tax may need to advertise more to bring in customers, especially if they are near the border when customers can easily cross into a sales tax-free state. They may also need to add sales tax into their pricing calculations and point-of-sale systems. For small businesses, that often requires accounting for sales taxes in budgeting to stay profitable. In these states, businesses may rely on sales tax-free weekends held throughout the year to bring in more customers.

In states without sales tax, businesses may need to adjust their pricing models and inventory to account for consumers crossing state lines to shop there. Businesses operating in multiple states, including those with and without a state sales tax, will likely have to adjust their budgets and pricing models to account for different types of taxes, meaning prices may differ in each state depending on the sales tax. However, businesses in states without a state sales tax don’t have to collect or remit sales tax, which can save the business time and money. Businesses in these states need to be aware of other potential taxes, including corporate or property taxes that may be higher to bring in state revenue. Although businesses don’t have to worry about sales taxes, there may be other costs to running a business. 

Is state sales taxes good or bad?

Benefits and Challenges of Tax-Free States 

Taxes and the cost of living are a major consideration when people decide where to live. While living in a state without sales tax may sound like a great advantage, there are positives and negatives to consider:

Pros of Tax-Free States

  • Savings from not having to pay additional taxes on most retail purchases
  • Simplified purchases from not having to calculate sales tax
  • Business growth opportunities from attracting more shoppers

Cons of Tax-Free States

  • Potentially higher cost of living
  • Higher taxes in other areas, including income or property taxes
  • Potential local sales taxes, meaning not every purchase is tax-free

If you want to learn more about sales tax and how to prepare your business with a smooth sales tax process, no matter where you're located, contact Peisner Johnson to get started with a customized sales tax system for your business needs.

Conclusion

There are 5 states without sales tax: New Hampshire, Oregon, Montana, Alaska, & Delaware. These states are often referred to as the NOMAD states.

While the lack of sales tax can seem like an attractive prospect for consumers and businesses alike, it's important to note that it doesn't necessarily translate to lower living costs. As we've seen with states like Oregon and New Hampshire, other factors can contribute to a higher cost of living, despite the absence of sales tax. Furthermore, the absence of sales tax is often counterbalanced by other forms of taxation, like higher income taxes or specific business taxes. Therefore, when considering the financial implications of living or doing business in a state without sales tax, it's crucial to look at the bigger picture, taking into account all potential financial obligations.
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