Which 5 States in the US Don’t Have Sales Tax in 2025?

Not all states impose sales tax, and for businesses and residents in these tax-free havens, the savings can be significant. But here’s the catch: businesses in these states can still develop obligations to collect and remit sales tax in other states.

Navigating these tax nuances is crucial, especially for small business owners and ecommerce entrepreneurs operating across state lines.

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What Is Sales Tax?

Sales tax is an indirect tax levied on the sale of certain goods and services in the US, meaning it is imposed on businesses but ultimately paid by consumers.

When a customer makes a purchase, the retailer collects the tax at checkout, adds it to the retail price, and is responsible for remitting the amount to the appropriate government agency by the due date.

This tax serves as a crucial revenue source for states and localities, funding public projects like schools, roads, and safety initiatives. While sales tax is primarily regulated at the state level, each state has its own set of laws and rules.

Some states even use terms like “transaction privilege tax” or “general excise tax” to describe it, though the core concept remains consistent.

Most states impose both state and local taxes on sales, but there are exceptions. For instance, seven states have a statewide sales tax but no additional local taxes.

Regardless of the specifics, understanding sales tax is vital for businesses to stay compliant and fulfill their responsibilities, such as filing returns and accurately remitting taxes to the proper authorities.

The seven states that have a statewide tax on sales but no additional local taxes are:

1. Connecticut

2. Delaware

3. Hawaii

4. Indiana

5. Kentucky

6. Maine

7. Michigan

These states maintain a simplified sales tax system, with no added layers of local sales taxes, making compliance and calculations more straightforward for businesses operating within their jurisdictions.

📌 Key Considerations for Businesses and Shoppers

While living or operating in a state without sales tax might seem like a financial win, there are important factors to consider. Many no-sales-tax states offset this advantage by imposing higher taxes in other areas, such as property or income taxes.

For businesses, it’s essential to evaluate the full spectrum of tax implications, not just the absence of sales tax, to make informed decisions about where to operate.

Another common misconception is that purchases made in no-sales-tax states can be brought back to states with sales tax without repercussions.

Let’s introduce you to use tax: a tax equal to the home state’s sales tax, applied to items purchased out of state and brought back home. This ensures residents pay the correct taxes on their out-of-state purchases.

For businesses, diligence is key. Acquiring goods or assets from a state without sales tax can trigger use tax obligations, and non-compliance may result in penalties. Staying proactive and informed about these regulations is critical for avoiding costly surprises.

How Does Sales Tax Affect Ecommerce Businesses?

Ecommerce businesses face unique challenges when it comes to sales tax. Here’s how it impacts them:

1. Nexus Rules: Sales tax laws are triggered by “nexus”—a connection between your business and the state. This can be established through physical presence, economic activity, or inventory stored in a state.

2. Multi-State Compliance: Selling online often means dealing with customers across state lines, making compliance a complex web of varying rules and rates.

3. Consumer Expectations: Shoppers are price-conscious, and sales tax can influence buying decisions, especially for high-ticket items.

4. Penalties for Non-Compliance: Failure to collect and remit sales tax correctly can lead to hefty fines and audits, making accurate bookkeeping essential.

Which US States Do Not Have Sales Tax?

While most states in the US impose a sales tax, a select few stand out by not requiring it.

As of 2024, five states—collectively known as the “NOMAD” states (New Hampshire, Oregon, Montana, Alaska, and Delaware)—offer residents and businesses the significant advantage of avoiding sales tax on most goods and services.

However, it’s essential to note that some of these states may still have local or specialized taxes.

State-by-State Breakdown

The table below provides a detailed breakdown of the five states in discussion along with the tax situations for business owners.

Balancing Tax-Free Living with Other Costs

While these states offer the benefit of no sales tax, each has unique taxation strategies to fund public services. Businesses and residents should evaluate the overall tax landscape, including property, income, or local taxes, to make informed decisions.

Whether you’re a business owner navigating multi-state operations or an individual planning a big purchase, understanding the implications of operating or residing in a no-sales-tax state is essential.

And with doola’s All-in-One Accounting by your side, managing your tax obligations—from compliance to filings—has never been easier. Book a free consultation today to simplify your financial management!

Benefits of Living or Operating in a No-Sales-Tax State

Operating or living in a no-sales-tax state offers a range of financial and strategic advantages for both individuals and businesses. Here’s a deeper dive into the benefits, complete with examples:

✅ Significant Cost Savings

For consumers, the absence of sales tax means immediate savings on every purchase, whether it’s a big-ticket item like electronics or everyday essentials. For instance, buying a $1,000 laptop in Oregon (a no-sales-tax state) means saving $50 to $100 compared to states with typical sales tax rates.

For businesses, these savings can translate to operational cost efficiencies. Without the need to account for sales tax in pricing, companies can keep costs down and offer better value to their customers.

Calculate Cost Savings:

Use the tax deduction calculator to estimate your cost savings on the sales made.

✅ Boost in Consumer Spending

Tax-free shopping creates a powerful incentive for consumers to spend more. This is especially true for neighboring states with higher sales tax rates.

For example: Delaware’s lack of sales tax attracts shoppers from nearby states like Pennsylvania and Maryland who want to save on big purchases like furniture or appliances.

Ecommerce businesses also benefit by appealing to cost-conscious shoppers nationwide who are looking for lower overall purchase costs.

✅ Enhanced Competitive Edge

Businesses located in no-sales-tax states have a built-in pricing advantage. This is particularly valuable in highly competitive industries like retail, where even slight price differences can drive customer decisions.

A store in Montana, for example, can price items more attractively compared to a competitor in California, where combined state and local sales taxes can exceed 10%.

This pricing advantage can also make no-sales-tax states a hotspot for companies looking to establish warehouses or distribution centers, ensuring competitive product pricing nationwide.

✅ Simplified Tax Compliance

Sales tax compliance can be a logistical challenge for businesses, requiring meticulous tracking, reporting, and remittance. In no-sales-tax states, businesses are relieved of this administrative burden. For instance:

📌 Time Saved: Businesses can allocate more time to growth initiatives instead of managing tax filings.

📌 Fewer Errors: Eliminating sales tax compliance reduces the risk of penalties associated with miscalculations or missed deadlines.

Moreover, no-sales-tax states like New Hampshire provide an attractive environment for startups or small businesses looking to simplify their financial operations during their growth phase.

✅ Attracting Businesses and Talent

No-sales-tax states often attract businesses seeking cost efficiencies and employees looking for a higher disposable income.

For example, companies in Alaska may find it easier to recruit talent because employees can stretch their salaries further without the additional burden of sales tax.

Want to make the most of the benefits offered by the above 5 states? Let’s doola it!

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How No-Sales-Tax States Impact Businesses

Operating in a no-sales-tax state can significantly influence business operations, customer appeal, and financial planning. Here’s a closer look at the key ways these states create opportunities—and considerations—for businesses.

1. Lower Operating Costs

Businesses in no-sales-tax states enjoy reduced operational expenses, as they don’t have to handle the complexities of sales tax collection, reporting, and remittance. This simplification saves time, resources, and costs related to compliance software or hiring tax professionals.

For example, a small boutique in Oregon can focus more on inventory management and customer experience rather than devoting resources to tax compliance processes. This cost advantage is especially valuable for startups and small businesses with limited budgets.

2. Cross-Border Customer Appeal

No-sales-tax states often act as magnets for shoppers from neighboring states with higher tax rates. Retailers in these states frequently see increased foot traffic from out-of-state customers who are eager to save on larger purchases.

Example: Delaware’s tax-free shopping attracts residents from Maryland and Pennsylvania, making it a hub for buying appliances, electronics, and even vehicles. Businesses strategically located near state borders can capitalize on this influx of shoppers, boosting sales and customer loyalty.

This cross-border appeal not only benefits physical stores but also creates a ripple effect in related industries like hospitality and tourism.

3. Ecommerce Businesses: Navigating Nexus Rules

While no-sales-tax states offer clear advantages for brick-and-mortar businesses, ecommerce companies face unique challenges. Even if an ecommerce business operates from a tax-free state like Montana, it may still have to collect sales tax from customers in taxable states where it has a “nexus”.

Example: If an ecommerce store based in New Hampshire ships products to California and stores inventory in a California warehouse, it creates a sales tax nexus in California. This means the business must collect and remit California sales tax for applicable transactions.

Businesses operating in no-sales-tax states must stay informed about multi-state tax obligations to avoid penalties.

4. Startup Magnetism and Thriving Ecosystems

No-sales-tax states often foster vibrant entrepreneurial ecosystems, drawing startups and small businesses eager to leverage tax savings. The reduced cost of doing business allows entrepreneurs to allocate funds toward innovation, hiring, and scaling operations rather than tax compliance.

Example: New Hampshire’s lack of sales tax and pro-business environment make it an attractive hub for small businesses and tech startups. Entrepreneurs in these states often find themselves surrounded by like-minded innovators, creating networks that fuel business growth.

This favorable tax landscape also appeals to larger companies looking to establish headquarters or distribution centers, boosting local economies and creating job opportunities.

Simplify Sales Tax Compliance With doola Bookkeeping

Managing sales tax compliance, even in no-sales-tax states, can be overwhelming. That’s where doola Bookkeeping steps in:

🚀 Accurate Records: Our bookkeeping services ensure your financials are up-to-date and audit-proof.

🚀 Nexus Monitoring: Selling across state lines? doola helps track your nexus obligations so you stay compliant.

🚀 Catch-Up Bookkeeping: Fallen behind on your books? With doola’s catch-up bookkeeping, you’ll get up to speed quickly and efficiently.

🚀 Custom Solutions: Whether you operate in a no-sales-tax state or manage multi-state compliance, doola tailors its services to fit your needs.

🚀 Expert Support: Our team simplifies complex tax scenarios so you can focus on scaling your business.

With doola by your side, you’re not just managing sales tax—you’re mastering it. Take charge of your business’s financial health today.

Book a free demo now and let’s power your business toward success!