In the US, sales tax is managed at the state level. Although most states have a state sales tax, a few states don't. Below, we'll explain what sales tax is, which states don't have it, and how to manage sales tax obligations across multiple states.

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 states have no sales tax?
  
• Understanding your sales tax obligations in other states
  
• How to manage sales tax compliance across multiple states
  
• How Stripe Tax can help
  

What is sales tax?

Sales tax is a type of indirect tax levied on the sales of certain goods and services in the US. It's called an "indirect tax" because it's 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.

Because each state sets its own rate and rules based on its budget needs, sales tax varies widely across the country. A few states stand out by charging no statewide sales tax at all, relying instead on other revenue sources such as income or property taxes.

Which US states do not have sales tax?

While the majority of states have a state sales tax, five states don't. Each of them has its own reasons for not using sales tax, usually tied to how it prefers to raise revenue. Some rely more heavily on income or property taxes or have other major revenue sources, and some simply have a long-standing political preference for keeping sales tax off the books. The trade-off is that these states typically make up the difference elsewhere, whether through higher income taxes, business-specific taxes, or local levies.

Businesses that operate in states with no sales tax are still subject to other state and local taxes, and companies that sell into another state might still need to collect sales tax there if they meet that state's nexus requirements.

These states have no sales tax and are known collectively as NOMAD:

• Alaska*: Alaska has no statewide sales tax, but it's the exception among the NOMAD states because many of its cities and boroughs impose their own local sales taxes. Alaska is also an associate member of the Streamlined Sales and Use Tax Agreement (SSUTA), a voluntary multistate programme designed to simplify and standardise sales tax compliance across participating states.

• Delaware: Delaware charges no sales tax at the state or local level. But businesses that operate there pay a gross receipts tax, a tax on total business revenue rather than profit, which applies across most industries.

• Montana: Montana has no general statewide sales tax, but certain resort and tourism-heavy communities are allowed to levy a local resort tax on goods and services such as lodging, restaurants, and recreation.

• New Hampshire: New Hampshire doesn't tax general retail sales, but it does impose a targeted meals and rooms tax on prepared food, restaurant meals, and short-term lodging.

• Oregon: Oregon has no sales tax on purchases, but businesses are subject to the Corporate Activity Tax (CAT), a business-level tax based on a company's commercial activity in the state.

*Although Alaska doesn't have a state sales tax, local jurisdictions can require remote businesses with economic nexus to collect sales tax. And over 100 jurisdictions in Alaska have a local sales tax.

If you have customers or a warehouse in one of these states or live there, you don't have to worry about collecting and remitting state sales tax in these states. However, there might be other tax types to consider such as excise tax, resort tax, and local option tax.

Understanding sales tax obligations in other states

Businesses can trigger sales tax obligations by having a physical presence or physical nexus in a state. Here are some business activities that can create physical nexus:

• Location: An office, warehouse, store, or other physical place of business – storing inventory often creates physical nexus

• Employees: Having an employee, contractor, salesperson, installer, or other person who does work for your business in a state

• Events: Selling products at a trade show or other event

Even if you're located in one of the five states without state sales tax, you might still need to consider your sales tax obligations in other states. If you make sales to customers in any other state, you could exceed an economic or physical nexus threshold.

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 relate to revenue, transaction volume, or both. This concept traces back to the Supreme Court's 2018 South Dakota v. Wayfair decision, which allows a state to tax out-of-state sellers even if they lack a physical presence there.

For example, in Nevada, businesses need to collect sales tax from customers only if they've exceeded US$100,000 in revenue or 200 transactions from customers in Nevada. Certain states have only revenue thresholds or require businesses to exceed both the revenue and transaction thresholds before they can collect sales tax. Since sales tax is governed at the state level, these thresholds vary across the US.

If you sell through an online marketplace, marketplace facilitator laws might shift this responsibility. In most states, these laws require the marketplace itself, rather than the individual seller, to collect and remit sales tax on those sales.

How to manage sales tax compliance across multiple states

Tracking nexus thresholds, tax rates, and filing deadlines across different states can become overwhelming, especially as your business grows. Rather than monitor them manually, many businesses use automated sales tax tools like Stripe Tax to calculate the correct tax rate at checkout, collect it from customers, and remit it to the appropriate state agencies.

These tools can also track your sales activity across states to alert you when you're approaching an economic nexus threshold, helping you stay compliant and reduce the risk of penalties or back taxes.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, value-added tax (VAT), and goods and services tax (GST) on:

• Digital goods and services in all US states and over 100 countries

• Physical goods in all US states and 42 countries

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You'll benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business. US tax filings can be automated in the Stripe Dashboard, powered by TaxJar.

Learn more about Stripe Tax or get started today.