Living in a state with no sales tax provides you with the benefits of reduced consumer costs. There are 9 states which free sales tax including Alaska, Delaware, Montana, and 6 more.
Whenever you purchase any goods or services from these states you are not charged with additional cost. It increases by purchasing power of residents. When even evaluating the overall financial impact of residing in a particular state, never miss to consider their tax policies.
- New Hampshire
Alaska, one of the nine no sales tax states, is the largest US state. Although it does not impose statewide sales tax, it's important to remember that some local municipalities and boroughs in Alaska do impose their own sales taxes.
These local taxes typically range from 1% to 7.5%, with an average of around 1.8%. Therefore, the actual sales tax you'll pay in Alaska will depend on your specific location within the state.
This is another wonderful state in the US that enjoys the perk of having no state sales tax. However, similar to Alaska, it's worth noting that while Delaware itself lacks a state sales tax, it does employ a gross receipts tax on certain businesses. This tax affects businesses rather than directly impacting consumers, but it can sometimes be reflected in the final price of goods. Although Delaware may have property and various other taxes, it still remains advantageous for people seeking favorable environment.
In Montana, residents benefit from a sales tax-free environment, but it's important to note that there may be taxes on lodging and car rentals. This allows the state to generate revenue from specific services often utilized by visitors.
While there's no statewide sales tax, some Montana municipalities and local governments do have their own sales taxes. These typically range from 0.75% to 3%, so the actual tax you pay will depend on your specific location within the state.
Cost of Living: Despite no state sales tax, Montana's cost of living can be slightly higher than the national average, especially in some larger cities. Factors like housing and transportation contribute to this.
Living in New Hampshire is a financial win for residents since the state doesn't have a statewide sales tax. However, some local areas in New Hampshire might have their own sales taxes, usually between 1% to 8%.
Your actual tax rate depends on exactly where you are in the state. With no state income tax as well, New Hampshire remains an attractive choice for those seeking a low-tax lifestyle even though, it has some of the highest property taxes in the nation, per capita.
Although this state does not charge state-wise tax, it is important to note some local taxes can be charged which can vary between 1% to 3%.
Unlike New Hampshire, Oregon has a graduated income tax system with rates ranging from 4.75% to 9.9%. This can offset the lack of state sales tax for some, but it's crucial to consider in the overall tax picture.
The place offers stunning natural landscapes, a vibrant cultural scene, and a reputation for progressive values. These intangible factors, along with the lack of sales tax, might outweigh the higher cost of living for some individuals.
Advantages of Living In Sales Tax Free State
Staying or living in the States without sales tax can be beneficial for several reasons.
Lower Cost of Living:
One of the most immediate benefits is a lower cost of living. Without a sales tax, you can purchase goods and services at the listed price without additional charges, leading to savings over time.
You can enjoy direct savings on everyday purchases, from clothing and electronics to groceries and other taxable items. This can contribute to increased disposable income.
States that have no sales tax are often attractive to businesses. This can stimulate economic growth as businesses may find it advantageous to set up operations in a location with a lower overall tax burden.
Simplicity in Transactions:
Consumers and businesses in sales tax-free states experience simplicity in transactions. There's no need to calculate or account for sales tax when making purchases.
Attractive for Retirees:
These places can be particularly attractive for retirees on fixed incomes, as they can stretch their dollars further. Without the burden of sales tax, you may be more inclined to spend locally.
Disadvantages of Living In Sales Tax Free State
Although you may receive some benefits from living in these places, you can also encounter some potential disadvantages. Some of them are:
Reliance on Other Taxes:
Many states may be benefiting from sales tax as it is considered the major source of revenue. In the absence of these taxes, the state government may rely on other sources of tax as income or property.
Impact on State Revenue:
Facing challenges generating sufficient revenue to fund public services and infrastructure, the states can lead to budget constraints and potential limitations on public programs and services.
Tourism and Border Shopping:
While sales tax-free states may attract tourism, residents from neighboring states might cross borders to make major purchases, potentially impacting the revenue of nearby sales tax-free states.
Challenges for Local Governments:
Governments in these states may face difficulties in funding local projects and services, as they do not charge any sales tax. This could result in slow infrastructure growth of the state.
States With Highest Sales Tax
One of the highest charges of sales tax state has an average combined state and local taxes below 10% statewide. This means that travelers can move around the state without encountering significant tax rate changes seen in some other states.
However, it's important to note that Tennessee imposes a tax on groceries, albeit at a reduced rate of 4%.
- Statewide sales tax: 7%
- Average local sales tax: 2.548%
- Average combined sales tax: 9.548%
Ranking the second highest sales tax paying state, you won’t pay taxes on groceries or prescription drugs. Some localities can impose their tax rates of up to 7%. That means residents in some areas of the state face an 11.45% sales tax rate.
- Statewide sales tax: 4.45%
- Average local sales tax: 5.097%
- Average combined sales tax: 9.547%
Similar to Louisiana, you are exempt from paying the tax on prescription drugs. Even though its cost of living is below the national average, Arkansas has the third-highest average combined sales tax rate in the country.
This highlights that while you may pay more in sales tax, the overall cost could still be lower if the taxable items themselves are less expensive.
- Statewide sales tax: 6.5%
- Average local sales tax: 2.943%
- Average combined sales tax: 9.443%
Other States with Average Combined Sales Tax:
- Washington: 9.397%
- Alabama: 9.237%
- Oklahoma: 8.986%
- California: 8.851%
- Illinois: 8.838%
States With Lowest Sales Tax
With the lowest sales tax of 4%, Hawaii has a complex sales tax system with many different levels (county, city, transportation, and special purpose districts).
In Hawaii, sales tax is included in the final price of goods and is passed on to customers. In most cases, businesses charge a 4.712% rate, even though the applicable tax rate is 4.5%.
- State sales tax: 4%
- Average local sales tax: 0.443
- Average combined sales tax: 4.443%
Adopted nearly 90 years ago as a temporary measure, sales tax in Wyoming became permanent just a few years later. It’s now at 4%, but cities and counties can set tax rates of up to 2%.
- State sales tax: 4%
- Average local sales tax: 1.441%
- Average combined sales taxes: 5.441%
Due to two recent hikes in the Milwaukee sales tax, the sales tax rate may shortly rise in various areas of Wisconsin. Yet, the state exempts prescription medications from taxes. Additionally, there will be no sales tax in Wisconsin for food.
- State sales tax: 5%
- Average local sales tax: 0.429%
- Average combined sales tax: 5.429%
Other States with Average Combines Sales Tax:
- Maine: 5.5%
- Virginia: 5.767%
- Michigan: 6%
- Kentucky: 6%
- Washington D.C.: 6%
States With Free Taxes
States With No Property Tax:
Sadly, there are no states without a property tax in the US. These taxes play a big role in funding essential services like police, schools, roads, and more. These taxes are crucial for keeping things running smoothly in our communities.
Some Low Property Tax states:
- Hawaii: 0.31%
- Alabama: 0.37%
States With No Federal Income Tax
There are a total of nine states in the US which does not impose income tax. Although some local bodies may impose some rate tax, these states have no statewide tax imposed on this public.
- South Dakota
States With No Income Tax For Retirees
Thirteen states do not charge retirement tax income, so you may avoid paying Uncle Sam on pension payments, 401(k) distributions, and IRA withdrawals. Your Social Security benefits are tax-free in even more states.
- South Dakota
- Iowa (must be 55 or older)
- Mississippi (must meet retirement plan requirements)
- Pennsylvania (must meet retirement plan requirements)