Understanding the sales tax percentage in each state can have far-reaching implications for consumers and businesses alike.
The latter group, along with retailers, might find the percentage taxes on sales items useful for strategizing on pricing and location, and consumers could benefit from smart purchases and decisions.
Sales tax often differs from state to state, especially for those with multiple cities, counties, and local governments.
This article explores the lowest sales tax in USA in each state and its implications for businesses and residents.
What is Sales Tax?
A perusal of the USA’s geography sales tax reveals that the sales tax is levied for the sale of various goods and services.
While some states have statewide single figures, many allow the local governments to implement additional sales tax which results in a patchwork of percentages across the state.
Passage of the collected sales tax is done through retailers for goods and services at the point of sale which subsequently goes to the government.
How Sales Tax is Calculated
Sales tax is determined as a fraction of the asking amount of a product. For example, imagine a state has a sales tax of 5%. If a buyer gets a product worth $100, they will have to pay an extra $5 in sales tax.
In regions that do have a localized tax, the overall tax can also frequently include state, county, and city taxes combined which is often different from the rest of the state.
Benefits of Low or No Sales Tax
Living or operating a business in a state where the sales tax is low or completely non-existent comes with plenty of benefits:
Less Spending: Consumers can have an easier time making purchases for both goods and services, making household budgets more flexible.
Competition Among Businesses: Businesses can set more competitive prices than states with higher taxes which means earning the business of more customers.
Growth in Economy: Low-tax states might have an influx of businesses and people moving in, promoting economic development.
Easier Tax Administration: These states also greatly reduce the amount of work businesses have to do through heavy tax collection and administrative work.
States with No Sales Tax
Some states do not have data sales tax. Such states are great for both businesses and consumers, as they can minimize costs. Let’s take a look at some of these sales tax-free states:
Alaska: Alaska does not have a general sales tax, but some places have their own sales tax ranging from 1-7.5%. However, Alaska is one of the friendliest states in terms of taxation.
Delaware: Delaware is known for being business-friendly, and just like the state, has no local or state sales tax. Hence, many people register in Delaware and shop there.
Montana: Montana has no general sales tax, unlike most states, but some areas, specifically Resorts, might. This makes Montana a sought-after state for people looking to avoid sales tax for big transactions.
New Hampshire: New Hampshire has a tax-free structure when it comes to sales tax which is beneficial for both businesses and consumers. High property tax however balances out the tax savings.
Oregon: Oregon is one of the American states that does not have a general sales tax which is great for both businesses and customers. Additionally, Oregon also serves tax-free shoppers from other states.
States with the Lowest Sales Tax Rates
If these are not an option for you, these states have some of the lowest sales tax ranges.
Colorado: While there is a standing 2.9% state tax, locals have the option to impose additional taxes which may bring the total higher.
Missouri: The sales tax ranges from 4.225%. The local taxes added will increase the total tax, but it is still considered one of the lowest.
Georgia: The total tax adds up to 4% and locals can add additional taxes depending on the county or city.
Wyoming: Same as Hawaii, the average tax goes up to 4% with some local municipalities adding additional tax than average. Even though some areas charge more than others, this state is still known to have lower taxes.
Hawaii: The state charges an average of 4% on general excess taxes. The tax is similar to other operational taxes but is on the services offered.
Sales Tax Rates by State
Below is a table showing the statewide sales tax rates for all 50 states:
| State | Sales Tax Rate (%) |
| Alabama | 4.00 |
| Alaska | 0.00 (Local taxes apply) |
| Arizona | 5.60 |
| Arkansas | 6.50 |
| California | 7.25 |
| Colorado | 2.90 |
| Connecticut | 6.35 |
| Delaware | 0.00 |
| Florida | 6.00 |
| Georgia | 4.00 |
| Hawaii | 4.00 (General Excise Tax) |
| Idaho | 6.00 |
| Illinois | 6.25 |
| Indiana | 7.00 |
| Iowa | 6.00 |
| Kansas | 6.50 |
| Kentucky | 6.00 |
| Louisiana | 4.45 |
| Maine | 5.50 |
| Maryland | 6.00 |
| Massachusetts | 6.25 |
| Michigan | 6.00 |
| Minnesota | 6.875 |
| Mississippi | 7.00 |
| Missouri | 4.225 |
| Montana | 0.00 |
| Nebraska | 5.50 |
| Nevada | 6.85 |
| New Hampshire | 0.00 |
| New Jersey | 6.625 |
| New Mexico | 5.00 |
| New York | 4.00 |
| North Carolina | 4.75 |
| North Dakota | 5.00 |
| Ohio | 5.75 |
| Oklahoma | 4.50 |
| Oregon | 0.00 |
| Pennsylvania | 6.00 |
| Rhode Island | 7.00 |
| South Carolina | 6.00 |
| South Dakota | 4.50 |
| Tennessee | 7.00 |
| Texas | 6.25 |
| Utah | 4.85 |
| Vermont | 6.00 |
| Virginia | 5.30 |
| Washington | 6.50 |
| West Virginia | 6.00 |
| Wisconsin | 5.00 |
| Wyoming | 4.00 |
Impact of Sales Tax on Consumers and Businesses
For Consumers: A considerable amount of tax placed on sales means that consumers are likely going to be paying more for goods and services offered, while the fewer taxes one has to shoulder, the more they save. States with very low tax ranges may see an increase in larger purchases like automobiles or electronics due to the reasonable tax applied.
For Businesses: Companies and businesses that are located in states with low tax ranges have the potential to appeal to more customers. This is mostly due to the cheaper product prices as it gives them an edge over the companies located in high-tax states.
For E-commerce: The Supreme Court decision in South Dakota v. Wayfair allows states to collect sales taxes from online retailers which means that online businesses must be careful about where they operate because, in some states, they are obligated to collect sales taxes even if they do not have a physical store.
How To Reduce Sales Tax Costs
Shop in Tax-Free States: Make major purchases in states like New Hampshire or Oregon, which do not charge sales taxes.
Take Advantage of Tax Holidays: Some states allow a tax-free holiday period to allow consumers to spend on the essentials without the burden of taxes.
Consider Business Relocation: Companies can also relocate their base of operations to states that do not impose high taxes.
Final Thoughts
It is important to note that the state policies on sales tax can significantly impact where a business should be set up as well as where a person should choose to reside.
States that do not levy sales tax are very attractive for both businesses and individuals to move there and can save a lot of money.
Want to set up an LLC or expand your business in a state with low sales tax?
You can always reach out to EasyFiling for assistance in navigating the policies of the state and easily setting up the business.
Reach out to us for assistance now!
Nabin Adhikari
