The 5 U.S. States Without a Statewide Sales Tax
Where to Do Your Purchasing in the U.S.
Almost every state in the country has a sales tax, with rates ranging from 7.5 percent in California to just 2.9 percent in Colorado. Most states also allow local counties, cities, and municipalities to add their own separate sales taxes to the state rate, but there are a few consumer-friendly exceptions.
States Without a Sales Tax
Only five states do not have a sales tax:
- New Hampshire
But this list is a little misleading because although Alaska doesn't have a state sales tax, it does allow localities to impose sales taxes which range from 1 to 7 percent. This puts the average sales tax rate statewide at around around 1.75 percent – not huge, but it's not zero, either. Montana also allows local sales taxes.
Delaware doesn't have a sales tax, but it does impose a gross receipts tax on businesses, a percentage of total receipts from goods sold and services rendered within the state. This tax ranges from .1006 percent to .7543 percent. Although it's not technically charged to consumers, its effects can be felt in the sales prices of goods and services.
States with Low Sales Taxes
Of states that do have a sales tax, some are less significant than others. Colorado's tax is the lowest at 2.9 percent. Thirteen states impose sales taxes of 5 percent of the purchase price or less, including five states where the tax is just 4 percent. They include:
- Alabama (4%)
- Colorado (2.9%)
- Georgia (4%)
- Hawaii (4%)
- Louisiana (5%)
- Missouri (4.225%)
- New York (4%)
- North Carolina (4.75%)
- North Dakota (5%)
- Oklahoma (4.5%)
- South Dakota (4.5%)
- Wisconsin (5%)
- Wyoming (4%)
Local taxes can push these rates up, however.
Combined State and Local Taxes
Thirty-eight states collect sales tax at both the state and local levels as of 2017. Only Delaware, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, Oregon, Rhode Island and the District of Columbia do not permit local sales taxes. This makes Montana, New Hampshire and Oregon the only states that truly do not impose any sales taxes at all, or extra taxes that can trickle down to the consumer.
Both businesses and savvy consumers adjust when combined tax rates become prohibitive. It's not uncommon for some New Jersey residents to cross over the border to shop in Delaware – it's often cheaper, even with that gross receipts tax at play. In fact, New Jersey has taken steps to address this, exempting Salem County – which abuts the state line – from collecting New Jersey's 6.975 percent sales tax, although the state does not waive the tax for these residents entirely. It reduces it by half to 3.4375 percent in an attempt to lure consumers into doing their shopping at home.
Likewise, many Chicagoans go outside the city for their purchases. They pay a combined sales tax of a whopping 16.5 percent when they buy within city limits – 10.25 percent at the city level plus 6.25 percent at the state level.
Among states that do allow for a combined sales tax, Louisiana, Tennessee, Alabama, Arkansas and Washington have the highest rates when state and local taxes are added together. They range from 8.92 percent in Washington up to 9.98 percent in Louisiana as of 2017. On the other end of the spectrum, Hawaii, Wisconsin and Wyoming have the lowest combined rates: 4.35 percent in Hawaii, 5.4 percent in Wyoming and 5.42 percent in Wisconsin. Businesses establishing themselves close to the borders of these states, as well as the five that do not charge state sales taxes at all, frequently buy property or otherwise situate their operations on the "right" side of the state line.
Exemptions from State Sales Taxes
Many of the states that have sales taxes exempt food from taxation, but Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma and South Dakota do not exempt food items from their state sales taxes.
Some states charge a lesser sales tax on food items, including:
- Arkansas (1.5%)
- Illinois (1%)
- Missouri (1.225%)
- Tennessee (5%)
- Utah (3%)
- Virginia (2.5%)
Food is subject to local sales taxes even if it's exempt from state sales taxes in a few states, including Georgia, Louisiana, North Carolina and Tennessee.
All states except for Illinois exempt prescription drugs from state and local sales taxes. Prescription drugs are subject to a 1-percent sales tax in Illinois.
A handful of states also exempt non-prescription drugs from sales taxes, including:
Clothing is exempt from state sales taxes in a few states, mainly in the Northeast. These include: Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, and Rhode Island.