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Nomad states: 5 states without sales tax (and those with the lowest)
Collecting and paying taxes aren’t favorite topics among businesses. State sales tax can mean extra time and work for business owners.
If you operate in a state that requires sales tax, you need to get a sales tax license and stay current on the sales tax rate for your state. Otherwise, you risk hefty fines.
However, some states don’t collect sales tax. Five states do not have state sales tax: New Hampshire, Oregon, Montana, Alaska, and Delaware. An easy way to remember which states have no sales tax is to use the NOMAD acronym.
But that doesn’t make them entirely tax-free. Intuit QuickBooks looks at the five states that don’t have a sales tax rate and highlights other tax rates you need to know.
1. Alaska
Alaska does not have a statewide sales or state income tax. However, many local municipalities impose their own sales tax.
Other taxes may also impact how affordable it is to operate in Alaska, including:
- Corporate income tax rate of up to 9.4%
- Local sales tax rates in Alaska range from 1% to 7.85%
Note that some of these local jurisdictions administer the local tax only part of the year, charging higher rates during popular tourist seasons.
2. Delaware
Delaware doesn’t have a state sales tax, either. The state makes up for this by collecting income taxes and several other taxes from businesses.
As a Delaware business owner, you may also have to pay:
- Gross receipts tax of up to 2%, depending on the business activity
- Corporate income tax rate of up to 8.7%
- Corporate franchise tax, ranging from a minimum of $175 to a high of $200,000
Cities also collect property taxes to help fund projects and services that improve and protect the community. While property taxes vary from jurisdiction to jurisdiction, the average property tax in Delaware is 0.43%.
3. Montana
Montana is another state that does not have a state sales tax. Montana doesn’t have local sales taxes, either.
However, it makes up for it with other taxes, such as:
On the flip side, Montana property taxes are fairly low, averaging 0.83%.
4. New Hampshire
There’s no sales tax in New Hampshire—not even in individual municipalities. However, businesses operating in the state should also be aware of the following taxes:
You’ll also see meals and room tax on your bill if you are dining out, staying in rented accommodations, or renting a motor vehicle in the state. The New Hampshire meals and rentals tax rate is 8.5%.
5. Oregon
Oregon does not have a sales tax, but it does have some of the highest income tax rates. Municipalities in Oregon can also set their own local sales taxes. When considering operating your business in Oregon, some taxes you should be aware of are:
- Corporate income tax rate of 6.6%
- Corporate Activity Tax of $250 plus .057% on commercial activity over $1 million
Some cities also have food and beverage and other local taxes you’ll want to watch out for.
Why you need to know your state sales tax rate
As a business owner, understanding and complying with tax laws can help you avoid audits, fines, or other penalties. That’s why it’s important to know when and how much to charge for sales tax.
Note that even if your state has a sales tax, the state may not collect sales tax on every item. There are specific exemptions from sales tax. Some items that are typically tax-exempt include medical supplies, non-prepared food items, and clothing.
Types of organizations that may be exempt from sales tax include nonprofits, educational institutions, and government agencies.
Find peace of mind come tax time
To keep your business in good standing, you need to know which sales tax may apply to you and ensure that you pay accurately. But how can you do that?
One of the easiest ways to keep track of sales tax obligations is to use accounting software that allows for automatic sales tax calculations according to your type of product or service. This makes it easy for you to remain compliant by taking out the guesswork and trying to keep tabs on all the different taxation rules.
This story was produced by Intuit QuickBooks and reviewed and distributed by Stacker.
