- In some of these states, sales tax is still collected at a local level.
- Certain products may be subject to excise tax e.g. alcohol or gasoline.
- Since the South Dakota v. Wayfair Supreme Court decision of 2018, you no longer need a physical presence in a state to have tax obligations there. eCommerce sellers based in NOMAD states may be obliged to pay sales tax in other states in which they reach an economic threshold.
What states have no sales tax?
The five states with no sales tax begin with the letters of the word ‘nomad’:
- New Hampshire
- Oregon
- Montana
- Alaska
- Delaware
It’s important for anyone operating a business in these states to be aware that you may still need to pay some form of sales tax. In this article, we’ll explain the rules of each of these states and how to work out if you’re obligated to pay tax in another state.
Why Do Some States Have No Sales Tax?
Sales tax is a crucial revenue stream for many states. However, some get by without it, either by charging higher income tax or collecting funds from other avenues.
By not collecting sales tax, these states hope to attract more businesses and consumers and ultimately achieve a higher rate of economic growth.
The Rules for Each of the ‘No Sales Tax’ States:
Alaska
Alaska doesn't impose a statewide sales tax, but some local jurisdictions levy sales taxes on certain transactions. Some of these localities in Alaska operate a seasonal local tax rate. For example, the tax rate in Sitka is 5% in winter but 6% from April to September.
Even with local taxes, the average sales tax rate across Alaska is 1.76%. It’s a pretty sweet deal for shoppers and a good opportunity for businesses if you can brave the cold.
Just make sure to check the sales tax rate of your local jurisdiction and complete your filings accordingly!
Delaware
The absence of sales tax in Delaware has made it a popular destination for shoppers, especially for bigger purchases like cars and technology.
It's important to note that Delaware does collect corporate income tax and a gross receipts tax. Though you don’t collect any tax from customers, your gross sales as a business will be taxable.
Montana
Montana is another state that does not levy a general sales tax. It does impose a ‘bed tax’ on lodging facilities and other goods and services offered by resorts, though. There’s also an excise tax on alcohol, tobacco and gasoline.
Some localities within Montana impose local option sales taxes, so business owners should double-check their obligations.
New Hampshire
New Hampshire does not impose a state-level sales tax and is in the process of phasing out its dividends and interest tax.
If you own a hotel, vehicle rental or hospitality business, though, you may need to collect Meals and Rooms tax from your customers. There are also local option taxes and state-wide taxes for some specific products.
Oregon
Being driving distance from California, Oregon is well-known for its lack of a statewide sales tax. Why does Oregon have no sales tax? Well, its income tax rate is pretty high and accounts for the majority of the state's funds.
There is a sales tax on vehicles in Oregon – including bicycles, for some reason. As with other NOMAD states, you should always check the specific rules for the products you sell.
When You Need to Collect Sales Tax in Other States
If your business is based in a NOMAD state, you still need to collect sales tax in any other states in which you have nexus. Nexus is a term that means you’re connected to a state for sales tax purposes.
How to work out if you have nexus in another state:
- If your business has a physical presence in a state, you may have nexus there. Physical presence can be anything from owning shops or warehouses to attending a trade show or having a mailing address there.
- You have economic nexus in a state if you sell a certain amount to end users there. Each state sets its own threshold for economic nexus, but in most, it’s either 200 orders or over $100,000 in revenue.
If you’re not sure which states you’re obligated to pay sales tax to, speak with a tax expert or check out our nexus monitoring service.
Get Expert Help With Your Sales Tax
The takeaway? ‘No sales tax’ doesn’t always mean no sales tax! If you’re based in one of the NOMAD states, we recommend chatting with one of our tax managers.
Book a free consultation and tell us about your unique circumstances. We’ll ensure you’re selling compliantly across the US.