5 states without sales tax and what you need to know about them

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Only two things in life are guaranteed: death and taxes. The three most common taxes we hear about are income tax, property tax and sales tax.

Property tax and income tax vary widely depending on where you live, your income, and the value of your home. However, the sales tax depends on where you shop. So yes, when you travel to another state you are subject to their sales tax.

But five states don’t actually levy sales tax. There are however stipulations for each of them, ranging from higher taxes on income and / or property, or the ability of local jurisdictions to implement their own sales tax.

Here’s what you need to know about each state that doesn’t levy sales tax on purchases.

The 5 states without sales tax

Sales tax is a major revenue driver for 45 states and the District of Columbia. According to Tax foundation, the average taxpayer will pay just over $ 1,000 a year in sales tax. In fiscal 2020, state retail sales tax revenues totaled $ 340 billion. This represents about a third of all state tax revenue, just behind income tax. Sales taxes are an essential means of financing government initiatives.

Although the states below do not charge sales tax, in some cases counties and cities in these states may charge their own taxes.

Alaska

Known as “The Last Frontier,” Alaska is the most tax-efficient state in the country. It has no sales tax and no state income tax. Alaska charges a slightly above average property tax rate of 1.18%, but the state has several ways to claim property tax exemptions.

Across Alaska, many of their counties, known as “boroughs,” charge sales tax. For example, the Borough of Juneau imposes a 5% sales tax on eligible purchases and collected more than $ 47 million in sales taxes in 2020.

Delaware

The “First State” also does not charge its residents or visitors any state sales tax. In addition, no jurisdiction in Delaware applies sales tax measures. However, Delaware has a gross sales tax that applies to businesses on the total sales amount of goods and services sold.

While Delaware has no sales tax, low property taxes, and is known as a tax shelter for businesses, it compensates for this by levying a moderate income tax.

Montana

Another sparsely populated state, Montana does not have a state sales tax. However, local municipalities that attract tourists like Big Sky have the right to apply local sales taxes. Property taxes are on the heaviest end of the scale, and income tax is close to the 50-state average rate.

New Hampshire

Granite State also chose not to collect sales taxes. The caveat against the lack of sales tax is that New Hampshire has one of the highest property tax rates in the country. Income tax is extremely limited as it only applies to interest (such as that from a high yield savings account) and dividend income (such as dividends from share purchases).

Oregon

Finally, the Beaver State does not collect sales taxes. However, the only caveat listed on the Oregon Department of Revenue website is if you buy a new car out of state, you must pay sales tax in order to register the car.

To compensate for the lack of sales tax, Oregon has a very high tax burden and a moderately high property tax rate.

Sales tax isn’t the only tax to consider

While you might think you pay a lot of sales tax because of how often you charge it, from the list of taxes you will pay in your lifetime, sales tax is actually not that high. than you think. Even if you live in a state that imposes sales taxes, sometimes there are legal ways to avoid paying them, including sales tax holidays. In fact, you will probably have pay more in loan interest as sales tax throughout your life.

But if you’re considering what your tax burden might be in a new state, be sure to consider these bigger tax bills:

  • Property taxes: Ranging from around 0.30% in Hawaii to over 2% in New Jersey, homeowners receive a tax bill based on the house purchase price. However, as home values ​​increase, property taxes may also increase in each respective state. This calculation is known as assessed value and is performed by a county assessor. Each state calculates this differently, so be sure to check with the relevant state’s Department of Revenue. And keep in mind that you may be able to earn travel rewards Where cash back through pay your property taxes with a credit card.
  • Income taxes: If you are employed and paid as a W2 employee, rather than as a self-employed or as an employee lateral restlessness, you will have income taxes automatically deducted from your salary. There are two different income taxes: federal and state income taxes (although a few places, like New York City, have their own income taxes). Federal tax brackets can be found here. Each state has different tax rates, so be sure to check what your tax burden is before working in a different state. There is currently nine states without income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
  • Social charges: Just like income taxes, payroll taxes are also automatically deducted if you are an employee of W2. These taxes may appear on your pay stub as “FICA” or “MEDFICA”. These taxes are used to fund programs such as Social Security and Medicare and are divided between you and your employer. According to the IRS, the current Social Security tax rate is 6.2% for both employer and employee, or 12.4% in total. The current Medicare tax rate is 1.45% for employer and employee, or 2.9% in total.

At the end of the line

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.


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