Five States with No Sales Tax

by DMA Staff | Apr 06, 2016

Sales tax is one of the most commonly used sources of individual state revenue in the US. Moreover, 21 percent of total combined state and local tax revenue comes from the imposition of sales and use taxes.  However, Alaska, Montana, New Hampshire, Delaware, and Oregon, have all chosen to not employ a sales tax as a source of state funding and have shifted their focus toward other sources of tax revenue with less impact on the everyday consumer.

For Alaska, though it may not have a statewide sales tax or an income tax, a local option tax is allowed for specific goods and services. Royalties and taxes from major oil companies make up the bulk of state revenue. In the same way, Montana also utilizes local tax options, however they are used only for designated areas of the state that attract tourists and house resorts.

New Hampshire has no statewide sales tax or individual income tax on wages except on interest and dividend income. However, New Hampshire makes up the difference through the assessment of high property taxes. Because Delaware implements a flat corporate income tax rate, which brings in the fourth highest tax collection in the country, the state reaches their tax revenue goals without the use of a sales tax. Finally, Oregon creates a balance for its tax revenue through a high income tax and property tax assessment.

Whether it’s localized option taxes, increased income taxes, or region specific taxes, these states have found a way to meet their needs without the use of a statewide sales tax. Every state has a unique combination of taxes to foot the budget, but is the potential increase in economic activity through no sales tax worth the trade-off for every state?

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