All 50 states make different choices about where they’re going to get the tax revenue they need in order to provide the services their residents expect and demand. With income taxes, property taxes, and sales taxes among the revenue-collecting tools at their disposal, most states end up using a combination of all three to make ends meet.
But some states have chosen not to impose any sales tax at the state level, making it a lot cheaper for shoppers to buy. Using a combination of figures from the Tax Foundation, including general state sales taxes and average local-option surtaxes, let’s look at the five states that don’t have statewide sales taxes with an eye toward identifying the impact their decision has on individuals and businesses.
Although Alaska doesn’t have a statewide tax, it does have local option taxes that amount to an average rate of 1.69%. Alaska doesn’t have an income tax, either, relying solely on property taxes for its sole means of support from individuals. The lion’s share of state revenue, however, comes from royalties and oil tax revenue from Exxon Mobil Corporation (NYSE:XOM), ConocoPhillips (NYSE:COP), and BP plc (ADR) (NYSE:BP), all of which have extensive operations in the state. Even recent tax cuts on those oil giants hasn’t added to residents’ share of the overall tax burden, and residents also receive checks from the Alaska Permanent Fund amounting to $878 per person in 2012.
Like Alaska, Montana also has local-option resort taxes in certain areas of the state, but the Tax Foundation lacked adequate data to measure the average impact of those add-on taxes. Yet many of the most populous areas of the state, including Billings, Bozeman, and Missoula, don’t have any sales taxes at all. Given that state’s remote location, however, having no sales tax doesn’t do much to draw shoppers from neighboring states. Fairly high income taxes offset the lack of sales tax.
3. New Hampshire
With the moniker “Live Free or Die,” New Hampshire gives residents a double-tax break, with no sales tax and an income tax that applies only to interest and dividend income. High property taxes make up the difference, but New Hampshire’s proximity to Boston leads to a regular exodus of shoppers across the Massachusetts border to avoid that state’s 6.25% sales tax.