In the US, sales tax is managed at the state level. Though most states have a sales tax, a few states do not.
Note that this is general sales tax information and you should consult an expert for advice specific to your business.
What’s in this article?
- What is sales tax?
- Which states have no sales tax?
- Understanding your sales tax obligations in other states
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 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 states have no sales tax?
While the majority of states have a sales tax, these five states do not have a state sales tax:
- Alaska*
- Delaware
- Montana
- New Hampshire
- Oregon
*Though Alaska does not have a state sales tax, the state lets local jurisdictions require remote businesses with economic nexus to collect sales tax. And more than 100 jurisdictions in Alaska have a local sales tax.
If you have customers or a warehouse or live in one of these states, 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, or local option tax in these states.
Understanding your sales tax obligations in other states
Even if your business is located in one of these five states, you still need to consider your sales tax obligations in other states. If you make sales to customers in any other state, you 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 $100,000 in revenue or 200 transactions from customers in Nevada. Certain states only have revenue thresholds or require businesses to exceed both the revenue and transaction thresholds before collecting sales tax. Since 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, store, 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 you are located in one of the five states without a state sales tax, you might have reached nexus in another state by meeting an economic or physical nexus threshold.
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