Sales tax plays a vital role in generating revenue for many states, as it financially supports the public sector, including education and infrastructure.
However, in 2025, five states will remain completely free of sales tax, which makes these places appealing to shoppers or businesses looking to save money.
Consumers save a great deal on big purchases like electronics and vehicles while retailers can lower their prices to appeal to more consumers. These states often compensate by charging higher property taxes or corporate taxes.
These policies assist citizens and businesses in making sound fiscal choices. In this article, we will outline the impact of these five US states without sales tax on their residents and businesses and their policies.
1. Alaska
The state of Alaska has no sales tax so intricate in their policy, local governments are empowered to have their own sales taxes within their boundaries. Regardless, Alaska remains attractive to those who want to pay less tax on purchases.
Due to the state’s scenery and sparse population, it is difficult to raise funds, but it balances this with income from oil and other natural resources.
Moreover, businesses operating in Alaska take advantage of the absence of state sales tax because it allows them to appeal to customers trying to save money. On the other hand, customers must be mindful of local taxes that may be enforced in different places.
2. Delaware
One of the most famous aspects of Delaware is being a business-friendly state because of its taxation policies. The absence of sales tax has made it a popular destination for shoppers, leading to a booming retail industry.
Aside from that, corporations are attracted to Delaware due to its business-friendly policies, which makes the state a center for business incorporation.
Many of the top businesses in the world make Delaware their legal jurisdiction due to the taxes being structured favorably to the corporation.
The state’s policies make it easy for businesses to flourish by lessening the tax charge on business transactions making the state productive for both small and big businesses.
3. Montana
Just like Alaska, Montana isn’t known for considerable opposition to state-wide sales taxes. On the contrary, certain localities may attempt to impose a tax on specific resorts. Local tourism and residents would appreciate the absence of sales tax especially in large cities such as Billings and Missoula.
The absence of state sales in Montana greatly aids the tourist sector, allowing visitors to freely purchase goods without tax fears.
The economic atmosphere of Montana is advantageous due to the lower taxes. Retailers and entrepreneurs can capitalize by maintaining a competitive rate as they do not have to pay sales taxes in the state.
Furthermore, the state enjoys an increase in its economy due to taxes from cross-border shoppers, especially from the neighboring states.
4. New Hampshire
New Hampshire is among the most favorable states when it comes to taxes as there is no sales tax or taxes on personal income. This policy also helps attract shoppers from neighboring states who want to avoid high taxi costs.
Residents of Massachusetts and Vermont tend to frequent New Hampshire for shopping without worrying about taxes, which benefits the economy there.
The absence of these taxes means that New Hampshire will need to increase property taxes. While the benefits of no sales tax in New Hampshire are substantial, businesses and residents need to take these financial responsibilities into account when they set a budget.
Even with this lack of sales tax, New Hampshire remains desirable for almost all businesses like retail and hospitality.
5. Oregon
In Oregon, there’s almost no sales tax. This induces a great stimulus for retail stores as well as buyers from a different state. Still, companies and people need to keep in mind that income tax in the state is pretty steep.
A large portion of spending in Oregon comes from tax-free shopping from people outside the state, especially from Portland which takes advantage of being close to a large part of the population for shopping.
The lack of sales tax has not only intensified tourism but also extremely boosted retail shopping. To add on, the effect on the business environment in the state is positive because businesses do not need to handle the complexities of sales tax.
At the same time, the downside is that the Oregon government needs to get more revenue from income tax which makes it more complex for business owners and other high earners.
Why do these states have no lease tax?
One of the primary reasons these states do not impose sales tax is due to their unique economic models and structures. Here is a breakdown:
Alaska: Alaska is one of the leading states for oil production alongside extracting natural resources. The revenue from these activities allows Alaska to avoid imposing a state-level sales tax, making it possible for them to fund public services. Nevertheless, local municipalities can impose their own sales taxes.
Delaware: Delaware is reliant on the incorporation of firms within which they impose strict corporate taxes and fees instead of the sales tax. The favorable laws for businesses within the state help offset the absence of sales tax which attracts thousands of companies.
Montana: Another state that does not collect sales tax is Montana, whose decreased population density in addition to the increased income from tourism and natural resources allows them to sustain themselves without sales tax. Some tourist-heavy areas impose local taxes to support infrastructure and services.
New Hampshire: New Hampshire picks up the slack from the lack of sales tax by imposing higher property taxes as well as taxes on certain commodities such as alcohol and tobacco. They also gain from residents of bordering states boosting their economy.
Oregon: Instead of sales tax, Oregon uses personal income taxes as one of the main revenue sources. This funding model enables the State to provide services and at the same time makes retail businesses appealing to consumers. Additionally, the state earns from border shoppers, especially from Washington where the sales tax is slightly higher.
How Businesses Can Benefit From No Sales Tax States
Business owners can truly make the most out of running a business in states that do not have sales tax. They can use the takes policy as an advantage while selling goods online since they offer states without tax policies can offer better price points than their competitors selling in states with sales tax.
In addition, there is quite a lot of competition in e-commerce wherein selling in a state with no sales tax can allow for a competitive benefit due to the lowered price and increased brand markup.
Selling goods and services from states that do not impose sales tax allows for better prices with increased profit margins which can greatly help e-commerce businesses.
Business owners must always remember to never overlook the economic nexus laws which might require them to account for nexus in other states for clients outside their area.
Key Considerations for Consumers and Businesses
Not paying sales tax increases opportunities for many business entities but there are still a lot of other tax duties and responsibilities they need to fulfill.
Some of these states have higher property taxes and taxes on personal income which collected are in attempts to gain revenue lost from sales tax.
Certain local tax systems like municipalities in resort zones in Alaska and Montana still have some remaining sales tax.
Like many tax policies, tax policies regarding online shopping are flexible and differ from state to state depending on where the buyer is located.
Even in the absence of a sales tax, Corporate taxes, and fees may apply to businesses that operate in these states.
Customers from neighboring states often travel to no-sales-tax states, impacting the pricing structure of businesses through tourism and retail incentives.
How EasyFiling Can Assist You with Establishing a Business in a State with No Sales Tax
If you are thinking about starting a business in one of these states, EasyFiling simplifies the task.
Whether it is an LLC, corporation, or another business entity, our specialists will assist you in understanding the specific state’s laws, compliance needs, and tax incentives.
We take care of the tougher parts of running a business like compliance issues and accounting and ensure that a business is set up to benefit from tax savings.
Get in touch with EasyFiling today and witness a seamless beginning to your business in US states without sales tax.
Final Thoughts
These states can prove beneficial whether you’re a consumer or business owner trying to save money as these states come with sales-tax-free advantages. However, it is crucial to analyze other economic factors before making any major financial decisions or operational changes in your business.
Buying and selling in these states may save you some dollars, but it is incredibly important to watch for property taxes, local or municipality tax laws, and the general cost of living.
Establishing a business in a state without sales tax can be beneficial, but it is important to understand your other tax responsibilities and other economic factors.
With proper planning, these tax-free zones can serve the purpose of strategic financial decisions, enhanced revenue generation, and improved economic conditions.
Frequently Asked Questions (FAQs)
What is the reason some states do not levy sales tax?
Some states have enough revenue brought in from areas such as corporate levies, property tax, tourism, or natural assets like oil which is available in Alaska, therefore a blanket sales tax is not implemented.
What other tax forms do revenue rate states without sales tax utilize?
Certainly. Even though revenue rate states do not levy a sales tax, they do tend to have higher property tax, corporation tax, or income tax. For instance, New Hampshire has some of the highest property taxes in the country, while Oregon has a higher-than-average income tax rate.
Can I shop tax-free in these states even if I don’t live there?
Of course. Shoppers from other states do visit revenue rate states such as Delaware or New Hampshire to make a large purchase without paying tax on it. Nonetheless, some states have rules where you will need to declare and pay a use tax on certain goods brought back home.
Do I have to collect sales tax if I start an online business in a no-sales-tax state?
Possibly. If sales tax applies and your business has an economic nexus (a predetermined level of sales or transactions) in another state, then you would likely have to collect and remit sales tax for customers in those states.
How can EasyFiling assist me in beginning a business in a no-sales-tax state?
EasyFiling assists you in maintaining compliance with the business formation processes in these states as it ensures that state regulations, tax obligations, and reporting requirements are met. We also offer bookkeeping services to aid in the financial management of your business.
Nabin Adhikari
