Why Some States Have No Sales Tax

Everyone · Explainer · Updated October 1, 2026 · LearnLife Editorial

What Is Sales Tax and How Do States Typically Use It?

Sales tax is a state or local government charge added to the price of most goods and some services when you buy them. The seller collects this tax at checkout and sends it to the government. States use sales tax revenue to pay for public services such as schools, roads, police, and emergency services.

For example, if you buy a jacket priced at $80 in a state with a 6% sales tax, you pay $80 plus $4.80 in tax, totaling $84. The straightforward collection method helps states raise money consistently because consumers pay tax when they spend.

Most states have sales tax, but a few do not. These states use other tax methods to fund government operations. Understanding sales tax basics clarifies the role it plays and why some states choose not to collect it. For a detailed explanation, see Why Sales Tax Exists and Its Purpose.

How Do States Without Sales Tax Fund Their Governments?

States that do not have sales tax use other revenue sources to pay for services. Common alternatives include:

• Income taxes: Collected annually on earnings from jobs or investments.
• Property taxes: Charged on the value of owned real estate or land.
• Natural resource revenues: Earnings from oil, gas, or minerals.
• Fees and licenses: Charges for things like vehicle registration, hunting permits, or tourism activities.

For example, if you earn $3,500 a month living in a no-sales-tax state, you won’t pay extra at the store, but you might see a higher percentage taken from your paycheck for state income tax. Or, if you own a home, your property tax bill could be higher than in other states.

Some states, like Alaska, receive significant funding from natural resources, reducing the need for sales tax. Others balance a mix of income and property taxes. This approach spreads tax responsibilities differently but still supports government programs.

Why Do Some States Decide Not to Have Sales Tax?

States choose to forgo sales tax for several reasons:

• Encouraging spending and business growth: Lower prices on goods can attract shoppers and companies.
• Boosting tourism: Visitors may spend more when they avoid paying sales tax.
• Political or philosophical beliefs: Some states prefer taxing income or property rather than consumption.
• Unique economic factors: States with abundant natural resources can rely on royalties instead of sales tax.

For example, Delaware does not have a sales tax, which makes it a popular shopping destination for residents of nearby states who want to avoid paying sales tax on purchases. This can increase business revenue despite no sales tax collection.

States weigh these benefits against the challenge of replacing sales tax revenue to maintain public services.

How Does Having No Sales Tax Affect Consumers and Businesses?

Consumers in no-sales-tax states pay less at checkout, which lowers the cost of everyday items and can make living expenses more affordable. For instance, buying a $200 television in a state with no sales tax means paying exactly $200, while in a state with 6% sales tax, you would pay $212.

Businesses benefit because they do not have to manage collecting, reporting, and sending sales tax, which reduces paperwork and administrative costs. This can make pricing simpler and reduce errors.

However, businesses might face other taxes or fees, such as higher corporate income tax or property tax, to support state budgets. Consumers and businesses should consider the entire tax picture, not just sales tax.

Here is a comparison of potential savings on purchases:

Consumers save more on higher-priced purchases, which can influence where they shop or live.

What Confusion Happens Between Sales Tax and Other Taxes?

Sales tax is often mixed up with other taxes:

• Income tax: Paid on money earned from work or investments.
• Property tax: Charged on homes and land ownership.
• Use tax: Applies to out-of-state purchases without sales tax but used in your home state.
• Excise tax: Specific taxes on certain products like gasoline or tobacco.

For example, if you buy furniture online from another state without paying sales tax, your home state may require you to pay a use tax on that item. This prevents people from avoiding taxes by shopping across state lines.

Also, some states allow local governments to add sales tax on top of the state rate, which can confuse shoppers about the total sales tax they pay. To learn more, see Is Sales Tax Different by County?.

What Should You Consider If You Move to or Shop in a State Without Sales Tax?

When living in or shopping in a state without sales tax, consider these steps:

1. Compare overall tax burden: Check if income or property taxes are higher to balance the no sales tax.
2. Understand local taxes: Some areas may impose local sales taxes even if the state does not.
3. Check use tax rules: Be aware if your home state requires reporting and paying use tax on out-of-state purchases.
4. Plan big purchases wisely: Buying expensive items like furniture or electronics in a no-sales-tax state can save money.
5. Look up tax rates: Visit official state websites or trusted resources for current tax rates and rules.

For example, New Hampshire has no sales tax but has relatively high property taxes. If you own a home there, your overall tax payments might be higher than living in a sales tax state with lower property taxes.

Here is a checklist to help evaluate moving or shopping decisions:

How Can You Find Out Which States Have No Sales Tax?

As of now, five states have no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, some allow local sales taxes, especially Alaska, where cities and boroughs charge local sales taxes ranging from 1% to 7%.

To confirm the current sales tax status:

• Visit official state tax or revenue department websites.
• Use reputable tax information websites or guides.
• Contact a tax professional when planning a move or big purchase.

Keeping up to date is important because tax laws can change over time.

How Does Understanding Sales Tax Help You Manage Your Money Better?

Knowing how sales tax works and why some states don’t have it helps you budget, plan purchases, and make informed decisions about where to live or shop. For example, if you plan to buy a large appliance, choosing a no-sales-tax state may save you money upfront.

Understanding your state’s tax system also helps you avoid surprises like owing use tax or paying unexpected local sales taxes. To manage money effectively:

• Include taxes in your spending plans.
• Factor tax differences into relocation or shopping choices.
• Keep records of purchases for tax reporting if needed.

For more on sales tax basics, see Learning About Sales Tax and Its Basics and Which States Have Sales Tax and How They Differ.

Frequently asked questions

What other taxes do states without sales tax use to raise money?

They mainly rely on income taxes, property taxes, fees, or natural resource revenues to fund public services, compensating for the lack of sales tax revenue.

Does shopping online from a no-sales-tax state mean I don’t pay sales tax?

Usually not. Your home state may require you to pay use tax on those items, which you must report and pay to avoid penalties.

Can local governments charge sales tax in states without state sales tax?

Yes. For example, Alaska has no state sales tax but some cities impose local sales taxes that buyers must pay.

How can I check if my state charges use tax?

Visit your state’s tax department website or contact them directly to learn about use tax rules and filing requirements.

Will living in a no-sales-tax state always save me money?

Not always. Higher income or property taxes might offset savings from no sales tax, so consider the overall tax burden.

What exactly is use tax and when does it apply?

Use tax is a tax on goods bought outside your state without sales tax but used or stored in your state. It ensures tax fairness and helps states collect revenue they would lose otherwise.