Almost every state in the country has a sales tax—45 of them plus the District of Columbia. Rates range from a high of 7.25% in California to just 2.9% in Colorado as of 2020.
Most states—38 in all—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 don't impose a sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. But this list is a little misleading because Alaska does allow localities to impose sales taxes, and these average 1.76%. It's not a huge amount, but it's not zero, either.
Delaware doesn't have a sales tax, but it does impose a gross receipts tax on businesses.
Delaware's gross receipts tax is a percentage of total receipts from goods sold and services rendered within the state, and it ranges from 0.0945% to 0.7468% as of 2020. It's not technically charged to consumers, but its effect can nonetheless be felt in the sales prices of goods and services.
States With Low Sales Taxes
Among states that do have a sales tax, some are less significant than others. Thirteen states impose taxes of 5% of the purchase price or less, including five states where the tax is just 4%. As of 2020, they include:
- Alabama: 4%
- Colorado: 2.9%
- Georgia: 4%
- Hawaii: 4%
- Louisiana: 4.45%
- Missouri: 4.225%
- New York: 4%
- North Carolina: 4.75%
- North Dakota: 5%
- Oklahoma: 4.5%
- South Dakota: 4.5%
- Wisconsin: 5%
- Wyoming: 4%
New Mexico just inches over the 5% line at 5.125%.
Combined State and Local Taxes
Thirty-eight states collect sales tax at both the state and local levels as of 2018. Only Connecticut, Delaware, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, Oregon, Rhode Island, and the District of Columbia do not permit local sales taxes.
Montana, New Hampshire, and Oregon are the only states that truly don't impose any sales taxes or extra taxes that can trickle down to the consumer.
The local sales tax rate in some states is pretty negligible, however. Idaho's average is just 0.03% as of 2020 and Mississippi's average is 0.07%. And when all of New Jersey's local taxes are averaged out, it actually works out to a negative number: -0.03%.
Among states that do allow for a combined sales tax, Alabama, Arkansas, Louisiana, Tennessee, and Washington have the highest rates when state and local taxes are added together. These combined rates range from 9.22% in Alabama up to 9.52% in Louisiana as of 2020.
On the other end of the spectrum, Hawaii, Wisconsin, and Wyoming have the lowest combined rates: 4.44% in Hawaii, 5.34% in Wyoming, and 5.46% in Wisconsin.
Exemptions From State Sales Taxes
Many states that have a sales taxes exempt food, but Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota do include food items in their state sales taxes.
Some states charge a lesser sales tax on food items as of 2020, including:
- Arkansas: .125%
- Illinois: 1%
- Missouri: 1.225%
- Tennessee: 4%
- Utah: 3%
- Virginia: 2.5%
All states except Illinois exempt prescription drugs from state and local sales taxes. Prescription drugs are subject to a 1% sales tax in Illinois.
A handful of states also exempt non-prescription drugs from sales taxes, including:
- District of Columbia
- New Jersey
- New York
Clothing is exempt from state sales taxes in a few states, mainly in the Northeast. These include Massachusetts, Minnesota, New Jersey, New York, Pennsylvania, Vermont, and Rhode Island.
Several states also offer sales tax holidays and weekends.
Working It Out
Businesses, governments, and consumers adjust when combined tax rates become prohibitive. It's not uncommon for New Jersey residents to cross over the border into Delaware to shop—it's often cheaper there, 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 the entirety of its 6.625% sales tax.
The state doesn't waive the tax for these residents entirely, however. It reduces it by half in an attempt to lure more consumers into doing their shopping at home.
Frequently Asked Questions (FAQs)
How do states without sales tax make money?
States without sales tax still must generate revenue for government services, and they will offset the lack of sales tax revenue with other taxes. In sales tax-free states, you'll usually find that business, income, or excise taxes are higher than in states with sales tax.
How do I find my state sales tax?
The Tax Foundation provides a list of state and average local sales tax rates for reference. To make sure you have the most current info for your state and local taxes, be sure to check with your state and local tax agencies.
What is the difference between sales taxes and excise taxes?
Sales taxes and excise taxes are both types of consumption tax. Unlike sales taxes, which apply broadly to most goods, excise taxes only apply to specific products such as tobacco, alcohol, and gasoline. These are often known as "sin taxes" because they are typically levied on goods considered socially harmful.