Five states have no sales tax at all

Alaska, Delaware, Montana, New Hampshire, and Oregon do not charge a statewide sales tax. If you live in one of these states or buy something from a retailer there, you will not pay sales tax on most purchases at checkout. This is different from the other 45 states, which all have some form of sales tax, though the rates and what they tax vary widely.

The absence of a sales tax does not mean these states have no taxes at all. Most fund their operations through income tax, property tax, or other revenue sources. New Hampshire and Tennessee, for example, tax investment income and dividends instead of wages. Alaska has no income tax and no sales tax, relying heavily on oil revenue and property taxes.

If you are shopping online or ordering from out of state, the sales tax rules are more complicated. Many online retailers now collect sales tax based on where you live, not where they are located, so living in a no-sales-tax state may not save you money on internet purchases.

Key Takeaways

  • Alaska, Delaware, Montana, New Hampshire, and Oregon charge no statewide sales tax on retail purchases.
  • These states fund government operations through income tax, property tax, oil revenue, or other sources instead.
  • Online retailers typically collect sales tax based on the buyer's location, so a no-sales-tax state residence may not exempt you from online purchases.
  • Some no-sales-tax states allow cities or counties to add local taxes, so your actual tax rate depends on where you shop within the state.
  • Moving to or shopping in a no-sales-tax state can lower your overall tax burden, but the difference varies by what you buy and how often.

Local taxes in no-sales-tax states

Even though five states have no statewide sales tax, some allow cities or counties to impose their own local sales taxes. Montana and Alaska permit local jurisdictions to add a sales tax on top of the state rate of zero. This means your actual tax rate depends on which city or county you are in, even within a no-sales-tax state.

Delaware and Oregon do not allow local sales taxes at all, so you will pay zero sales tax anywhere in those states. New Hampshire also has no local sales tax option. If you are considering a move or planning a large purchase, check your specific city or county rules rather than assuming the entire state is tax-free.

How no-sales-tax states fund government services

States without sales tax must raise money another way. Alaska has no income tax and no sales tax, instead relying on oil revenues and property taxes to fund schools, roads, and public services. This model works because of Alaska's oil industry, which is not available to other states.

New Hampshire taxes dividends and investment income but not wages, which is why it markets itself as having "no income tax" even though residents do pay tax on certain earnings. Montana and Oregon both have income taxes on wages and salaries. Delaware has income tax as well. These states chose to fund government primarily through income tax rather than sales tax.

The trade-off is that residents in no-sales-tax states often pay higher income tax or property tax than residents in states with sales tax. There is no universal rule about which approach costs residents less overall—it depends on your income, property value, and spending habits.

Online shopping and sales tax in no-sales-tax states

If you live in a no-sales-tax state and shop online, you may still owe sales tax. Since 2018, the U.S. Supreme Court ruled that online retailers must collect sales tax based on where the buyer lives, not where the seller is located. This means Amazon, Walmart, and most major retailers now collect sales tax from customers in every state, including the five with no statewide sales tax.

However, some smaller online retailers and marketplaces may not yet collect sales tax in all states. The rule applies to retailers with a certain level of sales volume, so very small sellers may not be required to collect. If you are shopping from a no-sales-tax state and the retailer does not collect tax at checkout, you may technically owe use tax (a parallel tax on purchases made out of state), though most individuals do not report this on their own.

What items are taxed or exempt in these states

Even in states with sales tax, certain items are often exempt—groceries, prescription medications, and medical equipment are commonly untaxed. The five no-sales-tax states do not have a uniform rule about what would be taxed if they did have sales tax, so this comparison is mostly theoretical.

In practice, if you live in Alaska, Delaware, Montana, New Hampshire, or Oregon, you will not pay sales tax on clothing, food, electronics, or any other retail purchase at a physical store in your state. The main exception is local sales tax in parts of Alaska and Montana, which may explore to all purchases or specific categories depending on local law.

Moving to a no-sales-tax state for tax reasons

Some people consider moving to a no-sales-tax state to reduce their overall tax burden. Whether this makes financial sense depends on your income, how much you spend, and what other taxes you will pay. A person with high income might pay more in state income tax in Oregon or Montana than they would save on sales tax, while someone who spends heavily on retail goods might benefit more.

Property taxes and housing costs also vary widely among these states. Alaska and Montana have lower property taxes than many states, while New Hampshire's property taxes are among the highest in the nation. Before moving for tax reasons, calculate your total state and local tax burden in both your current state and the state you are considering.

Frequently Asked Questions

Do I pay sales tax if I buy something in a no-sales-tax state but live somewhere else?

No. You pay the sales tax rate of the state where you are making the purchase. If you buy something in Oregon (no sales tax) while visiting, you will not pay sales tax, even if you live in a state that has sales tax. However, some states require you to pay "use tax" on out-of-state purchases when you return home, though this is rarely enforced for individuals.

Can I avoid sales tax by having something shipped to Alaska or Oregon?

Not reliably. Most major retailers now collect sales tax based on your billing address or delivery address, not the retailer's location. If you have a package shipped to an Oregon address but you live in California, the retailer will likely collect California sales tax. Some small retailers may not, but this is becoming less common.

Which no-sales-tax state has the lowest overall taxes?

This varies by your income and spending. Alaska has no income tax and no statewide sales tax, making it attractive for high earners, but property taxes and cost of living are high. New Hampshire has no income tax on wages but high property taxes. Compare your specific situation using a tax calculator rather than assuming one state is always cheaper.

Do no-sales-tax states charge tax on groceries?

No. Since these states have no sales tax at all, groceries are not taxed. In states that do have sales tax, groceries are often exempt or taxed at a lower rate, but the five no-sales-tax states do not tax groceries under any circumstance.

Is there a sales tax on services in no-sales-tax states?

Services like haircuts, repairs, and consulting are generally not taxed in the five no-sales-tax states. However, some states tax specific services like telecommunications or hotel stays. Check your local rules if you are buying a service in one of these states and want to confirm whether tax applies.