States with No Sales Tax: Your Guide to Going Tax-Free in the US

When managing compliance and reducing tax burdens, businesses and consumers often consider states with no sales tax as an attractive option. The five states—Alaska, Delaware, Montana, New Hampshire, and Oregon—eliminated sales tax at the state level, offering incentives for companies looking to simplify revenue management and reduce administrative overhead.

However, while these states lack a state sales tax, they often rely on other forms of revenue, such as excise taxes, property taxes, and other fees for services, to support infrastructure and public programs. Businesses should carefully assess jurisdiction-specific rules, exemptions, and rates to ensure full compliance with local regulations.

The absence of a state sales tax does not always mean a tax-free experience, as local rates and excise taxes can still apply to certain purchases of goods and services. This will be explained further in the next sections.

Alaska

Alaska is one of the few states in the U.S. that does not impose a statewide sales tax, making it an attractive destination for businesses and consumers looking to avoid extra costs on purchases. However, while there is no state-level sales tax, many local governments within Alaska have the authority to impose their own sales taxes, which can vary significantly by city or borough. These local sales tax rates can range from 1% to over 7%, meaning that while some areas remain tax-free, others require businesses to collect and remit sales tax based on local regulations.

In addition to local sales tax rates, Alaska relies heavily on excise taxes for revenue generation, especially for goods such as gasoline, alcohol, and tobacco. These taxes often affect purchases related to services and products that businesses depend on, making compliance with local tax codes essential.

Despite the absence of a state sales tax, companies should not overlook economic policy considerations, including property rates and licensing fees, which vary across jurisdictions. With the right tools, companies can take advantage of incentives offered by states with no sales tax while minimizing risks and ensuring smooth operations across local jurisdictions.

Delaware

Delaware is among the five states that do not impose a statewide sales tax, making it a popular destination for shoppers looking to avoid extra costs on purchases. However, while consumers benefit from this tax-free environment, businesses are subject to other forms of taxation, including the Delaware gross receipts tax, which applies to a company’s total revenue rather than its profits.

So, while Delaware eliminates the need to collect sales tax, businesses should be aware of its gross receipts tax, which can range from 0.0945% to 0.7468%, depending on the industry. Unlike traditional sales tax, this revenue-based tax applies to all goods and services sold, making compliance essential for accurate reporting.

Additionally, Delaware levies corporate income taxes, real estate transfer taxes, and excise taxes on specific goods like alcohol and tobacco. These taxes help generate revenue for the state while maintaining Delaware’s reputation as a business-friendly environment with no traditional sales tax burden.

Montana

Montana is another state with no statewide sales tax. However, while there is no general sales tax, certain areas within the state impose local option and resort taxes, which primarily target tourism-driven economies.

These taxes apply to lodging, restaurants, and other services in resort communities to help fund local infrastructure and public services. Additionally, Montana relies on other forms of taxation, including property taxes, individual and corporate income taxes, and excise taxes on fuel, alcohol, and tobacco to generate state revenue.

New Hampshire

New Hampshire does not impose a statewide sales tax too. However, the state does generate revenue through other taxes, including the Meals and Rooms (Rentals) Tax, which applies to restaurant meals, hotel stays, and car rentals at a rate of 8.5%.

Additionally, New Hampshire levies business taxes, real estate transfer taxes, and excise taxes on alcohol and tobacco while also relying heavily on property taxes to fund public services. Despite the lack of a general sales tax, these other taxes contribute significantly to the state’s revenue.

Oregon

Oregon has no statewide sales tax too, attracting shoppers aiming to reduce their overall spending on goods.However, the state generates revenue through other taxes, including vehicle-related taxes, such as the vehicle privilege tax (a tax on the sale of new vehicles) and the vehicle use tax (applied to vehicles purchased outside of Oregon but used within the state).

Additionally, Oregon relies on income taxes, corporate activity taxes (CAT), fuel taxes, and excise taxes on alcohol and tobacco to fund public services. While the absence of a sales tax benefits consumers, these alternative taxes help maintain state infrastructure and services.

Strategic Considerations for Businesses Operating in States with No Sales Tax

Even though businesses operating in New Hampshire, Oregon, Montana, Alaska, and Delaware (the five states with no statewide sales tax) do not have to collect sales tax within their own states, they may still be required to collect and remit sales tax in other states under various scenarios. Here are the key situations when these businesses must collect sales tax:

1. Economic Nexus

If a business surpasses a certain sales revenue threshold or transaction count in another state, it establishes economic nexus, requiring it to collect that state’s sales tax.

• Example: A Montana-based online retailer selling to customers in California must collect California sales tax if their sales exceed $500,000 annually in the state.

2. Physical Nexus

If a business has a physical presence (such as a warehouse, office, or employees) in a state with sales tax, it must collect sales tax in that state.

• Example: A New Hampshire company with a distribution center in Texas must collect Texas sales tax on sales made to Texas customers.

3. Marketplace Facilitator Laws

If a business sells through a marketplace (e.g., Amazon, Etsy, or Walmart), the marketplace facilitator may be responsible for collecting and remitting sales tax.

• Example: An Oregon-based seller using Amazon FBA may have sales tax automatically collected by Amazon for sales made in states where Amazon has nexus.

4. Affiliate Nexus

If a business has affiliates, contractors, or sales representatives in a state, it may establish nexus and be required to collect sales tax.

• Example: A Delaware-based SaaS company with sales agents working in New York could be required to collect New York sales tax on its services.

5. Click-Through Nexus

If a business generates sales through referrals or online advertising agreements in a state with click-through nexus laws, it may be required to collect sales tax.

• Example: A Montana-based business with New Jersey-based affiliate marketers who refer customers through online ads may have to collect New Jersey sales tax.

6. Inventory in a Third-Party Warehouse

Storing inventory in third-party fulfillment centers (such as Amazon FBA warehouses) located in sales-tax states creates nexus.

• Example: A New Hampshire business using an Amazon fulfillment center in Illinois must collect Illinois sales tax on orders shipped to Illinois.

7. Drop Shipping Transactions

If a no-sales-tax-state business uses a third-party supplier or drop shipper in a state that collects sales tax, the business may be required to collect tax.

• Example: A Delaware company selling products via a California drop shipper may be required to collect California sales tax from customers.

8. Selling Taxable Services in States That Tax Services

Some states tax digital goods, SaaS, or professional services, meaning businesses offering these services may need to collect sales tax.

• Example: An Oregon-based SaaS company selling software subscriptions to customers in Pennsylvania may be required to collect Pennsylvania sales tax.

9. Local Sales Tax Requirements in Alaska

While Alaska has no statewide sales tax, many local jurisdictions impose sales tax.

• Example: A business operating in Juneau, Alaska must collect and remit Juneau’s local sales tax on sales made to customers there.

In summary, just because a business is based in a state with no sales tax doesn’t mean it’s off the hook. Economic nexus, physical presence, marketplace sales, and other factors can trigger sales tax collection obligations in states where they sell. Businesses need to carefully track their sales and nexus triggers to remain compliant.

Handle Compliance in States with No Sales Tax With Kintsugi

States with no sales tax—Alaska, Delaware, Montana, New Hampshire, and Oregon—offer businesses and consumers valuable incentives by reducing tax burdens on purchases of goods and services. However, these states still rely on alternative revenue sources, such as excise taxes, property taxes, and fees, to fund public services and infrastructure. Companies selling across jurisdictions may still be required to collect sales tax if they meet economic nexus thresholds, making monitoring purchases, revenue, and rates essential.

Kintsugi helps businesses operating from no-sales-tax states seamlessly manage their tax obligations when selling in states where they have economic nexus, marketplace sales, drop shipping transactions, or taxable services. With multi-jurisdiction support and advanced reporting, Kintsugi ensures businesses stay compliant across different tax regimes, automatically tracking where sales tax needs to be collected.

Also, Kintsugi provides real-time tax calculations using the latest tax rates, so businesses never risk under- or over-collecting. Automated filing and remittance eliminate the hassle of manually submitting returns, saving time and reducing errors.

Kintsugi also includes exposure monitoring, alerting businesses when they approach or exceed tax thresholds in new states. Whether selling through marketplaces, third-party drop shippers, or directly to consumers, Kintsugi ensures seamless compliance, reducing risk and administrative burden. So, sign up or book a demo to experience effortless sales tax automation with Kintsugi!