In the US, sales tax is managed at the state level. Although most states have sales tax, a few do not.

Note that this is general sales tax information. Businesses should consult an expert for tailored advice.

What's in this article?

• What is sales tax?
  
• Which US states do not have sales tax?
  
• Understanding sales tax obligations in other US states
  

What is sales tax?

Sales tax is a type of indirect tax which is levied on the sales of certain goods and services in the US. It's called an "indirect tax" because it is imposed on the business but paid by the customer. The business collects the tax from the customer and is responsible for sending (remitting) the tax to the appropriate government agency at a set due date.

States and localities use sales tax revenue to pay for projects such as schools, roads and public safety initiatives. In the US, sales tax is primarily regulated at the state level, and every state has different laws and rules. Certain states refer to sales tax as "transaction privilege tax" or "general excise tax", but the concept remains the same.

Which US states do not have sales tax?

While the majority of US states have sales tax, these five states do not:

• Alaska*
  
• Delaware
  
• Montana
  
• New Hampshire
  
• Oregon
  

*Although Alaska does not have a state sales tax, the state allows local jurisdictions to make it a requirement for remote businesses with economic nexus to collect sales tax. And more than 100 jurisdictions in Alaska have a local sales tax.

If businesses have customers or a warehouse in one of these states, or if the owner's place of residence is located there, they don't have to worry about collecting and remitting state sales tax in the state. However, there might be other tax types to consider, such as excise tax, resort tax or local option tax.

Understanding sales tax obligations in other states

Even if a business is located in one of these five US states, it will still need to consider its sales tax obligations in other states. If it makes sales to customers in any other state, it might have sales tax obligations in those areas.

In the US, out-of-state businesses are required to collect sales tax from customers when they exceed certain thresholds. These thresholds are referred to as "economic nexus thresholds", and they are either revenue- or transaction-based, or both. For example, in the state of Nevada, businesses only need to collect sales tax from customers if they have exceeded US$100,000 in revenue or 200 transactions from customers in Nevada. Certain US states only have revenue thresholds, while others require businesses to exceed both the revenue and transaction thresholds before collecting sales tax. As sales tax is governed at the state level, these thresholds vary across the US.

Businesses can also meet sales tax obligations by having a physical presence or physical nexus in a state. Examples of business activities that can create physical nexus include:

• Location: An office, warehouse, shop or other physical place of business. Storing inventory often creates physical nexus.
  
• Employees: Having an employee, contractor, salesperson, installer or other person doing work for your business in a state.
  
• Events: Selling products at a tradeshow or other event.
  

Even if a business is located in one of the five states without a state sales tax, it might have reached nexus in another state by meeting an economic or physical nexus threshold.