Shopping can be more affordable in states with no sales tax, as you don’t have to pay extra fees on purchases. These states provide a great opportunity to save money, especially on big-ticket items. Whether you're planning to move, make a significant purchase, or simply curious, knowing which states have no sales tax can help you make better financial decisions. Here are the top sales tax-free states to explore!

What Is Sales Tax?

It’s the extra percentage you pay on top of the item's listed price when you check out.

For example, if your state’s sales tax rate is 7% and you’re buying a pair of shoes priced at $100, you’ll end up paying $107 once the tax is applied. While this might not seem like much for a single purchase, over time, sales tax can add up, especially for big-ticket items.

5 States With No Sales Tax

Currently, only five U.S. states completely forgo sales tax. Here’s a closer look at these tax havens and what makes them stand out.

1. Alaska

• Nickname: “The Last Frontier” earns its title by being the most tax-friendly state for shoppers.
• Why No Sales Tax? Alaska relies on oil revenues to fund state operations, which means residents don’t need to pay a statewide sales tax.

What to Keep in Mind? While Alaska doesn’t have a statewide sales tax, some local municipalities (boroughs) charge their own sales taxes, typically ranging from 1% to 7%. Planning your shopping trips in sales tax-free localities, however, can eliminate this cost entirely.

2. Oregon

Oregon often tops the list when people think of states with no sales tax, making it particularly popular for cross-border shoppers from neighboring Washington state.

Pro Tip for Visitors

If you’re driving up to Oregon for a shopping spree, be prepared for longer lines at popular outlets. Oregon’s retail stores are known hotspots for tax-free deals on electronics, clothing, and jewelry.

3. Montana

Montana offers more than breathtaking mountain ranges and tranquil lakes; it’s also a paradise for consumers and small businesses with no general sales tax.

Additional Benefits

Montana’s lack of a sales tax extends to both residents and visitors, making it a fantastic destination for tourists looking to pick up souvenirs or shop without the extra cost.

4. New Hampshire

New Hampshire lives up to its state motto by refusing to impose a sales tax. Its thriving economy doesn’t rely on retail sales but instead benefits from property and business taxes.

Tip for Businesses

Retail businesses often advertise the lack of sales tax as a selling point to attract customers from nearby states like Vermont or Massachusetts.

5. Delaware

While Delaware is widely known as a hub for businesses due to its lenient corporate tax structure, its sales tax-free status also attracts shoppers.

What’s Unique?

Even online shoppers enjoy Delaware’s tax-free buying experience since it applies to most retail sales regardless of the platform. Delaware malls, such as the Christiana Mall, attract significant traffic for this reason.

How Do States With No Sales Tax Make Up for Lost Revenue?

You may be wondering, “How do these states function without the extra income from sales tax?” Here’s how they balance the equation.

• Alaska: Alaska profits heavily from oil taxation and drilling royalties.
• Oregon: The state relies on income tax as a major revenue stream.
• Montana: Property and income taxes help fund its needs.
• New Hampshire: Higher property taxes fill the gap.
• Delaware: Corporate taxes and incorporation fees are major contributors.

Instead of spreading the tax burden to every consumer, these states focus on other revenue streams.

Pros and Cons of Living in a Sales Tax-Free State

Wondering if living in a state without sales tax is as dreamy as it sounds? Here are some advantages and challenges to consider.

Advantages

• More Spending Power: Without sales tax inflating the cost, your money goes further on everyday purchases.
• Attracts Shoppers and Tourists: Border states often see residents driving across to shop in tax-free areas. This boost in retail traffic supports businesses.
• Business-Friendly: For some businesses, selling in states without sales tax means simpler compliance since they aren’t required to collect and remit sales tax to the government.

Challenges

• Higher Income or Property Taxes: Some tax-free states compensate by collecting higher taxes on income or property.
• Reduced State Revenue: Without sales tax, funding public services like schools, roads, and healthcare may take a hit, potentially leading to resource constraints.

Tips for Shopping in Tax-Free States

Whether you’re visiting a tax-free state or considering moving to one, here are a few practical tips to make the most out of the experience.

For Visitors

• Plan big-ticket purchases ahead of your trip. This is especially beneficial for electronics, furniture, or luxury goods where the savings are significant.
• Research local tax policies. While statewide taxes might not exist, some areas may still have municipal taxes in place.

For Residents

• Enjoy the benefits but plan for other taxes like income or property tax that might be higher.
• Use the extra savings to invest or build an emergency fund for financial security.

Conclusion

Whether you're a visitor looking to capitalize on tax-free shopping opportunities or a resident enjoying the cost savings on everyday purchases, understanding the nuances of local tax policies can help you make informed decisions. By planning your spending wisely and considering the broader financial landscape, you can maximize the benefits of a tax-free environment while ensuring long-term financial well-being.