If you live near your state's border, savings could be just a road trip away! In fact, there are entire states you can shop in that are free of sales tax.
Today, five states collect zero state sales taxes. And local sales taxes are collected in only 38 states, according to the Tax Foundation. If you're looking to go duty-free (or close to it) on your next shopping trip, here are the six states with the lowest state and local taxes on goods and services.
6 States with the Lowest (or No) Sales Tax
State Sales Tax: 0%
Local Sales Tax: 1.78%
The Last Frontier is one of only five states to charge zero sales tax, and is one of two 0% sales tax states that allow local municipalities to levy a sales tax (the other is technically Montana). As of January 1, 2016, the average local sales tax rate in Alaska was 1.78%, making for a combined sales tax rate of the same.
State and Local Sales Tax: 0%
Shopping in the tri-state area of New York, New Jersey, and Connecticut won't net you any sales tax-free savings, but jump onto I-95 and head down to Delaware for 0% sales tax, statewide and locally. For proof that Delaware lawmakers are proud of the sales-tax-absent culture, consider that road signage upon entering the first U.S. state reads, "Welcome to Delaware: Home of Tax-Free Shopping."
Don't believe us? Take a look at this picture.
State and Local Sales Tax: 0% (with exceptions)
Big Sky Country may be beautiful for its wide-open expanses of land, mountains, and prairies, but visitors and residents alike can also bask in the glory of paying no sales tax in Montana. Who else can benefit? Canadians looking to save money just need to trek over to America for some shopping — but remember, one Canadian dollar is only worth 75 cents in U.S. currency, so their savings might be stymied. (Note that select Montana communities can levy resort and local option taxes.)
State and Local Sales Tax: 0%
Oregon is recognized as one of the most progressive states in the country. Even with Portland as a rising consumer and tourist hotspot, lawmakers have kept in place a fiscally liberal structure that includes zero sales taxes of any kind at the state or local level.
The good news if you're an Idaho resident? You're bordered on either side by Montana and Oregon, so there's ample opportunity to escape your own state's 6% sales tax rate.
State and Local Sales Tax: 0%
If you're in Maine (5.5% state sales tax) or Vermont (6% state rate), or don't mind journeying out from Boston, you might want to head over to New Hampshire. The New England region's only state without a definitive state or local sales tax, New Hampshire wouldn't be out of place if it changed its motto to "Sales Tax Free or Die."
State Sales Tax: 2.9%
Local Sales Tax: 4.62% on average
Colorado's 2.9% state sales tax rate is less than half of many other states' rates, but prepare to be let down a bit: Colorado towns and cities charge a 4.62% local sales tax rate on average. That brings the combined state/local rate to 7.52%.
States With the Highest Sales Tax Rates
Since we're on the topic, some states boast high sales taxes that, like most interest rates, can make you spend more than you'd like.
Which state has the highest? That distinction goes to California, which currently imposes a 7.5% sales tax rate. Other states are tied for second on the list at 7%, including Indiana, Mississippi, New Jersey, Rhode Island, and Tennessee.
But brace yourself: Local sales taxes can extend into the double digits. Among all the major U.S. cities, Chicago, Seattle, and Oakland lay claim to the highest sales taxes at 10.25%, 9.6%, and 9.5%, respectively.
Then again, the highest local sales taxes pop up in the smallest of cities. With its combo of state, county, and To'Nanees'Dizi tribe rates, Tuba City, Arizona carries the most expensive local sales tax in the country at 13.725%.
Feeling hungry? Most states exempt food purchases from their sales taxes — except for Alabama, Hawaii, Idaho, Kansas, Mississippi, Oklahoma, and South Dakota, where you'll pay an extra fee each time you hit the supermarket checkout line. But some states charge no sales tax on necessary purchases, like clothing or prescription drugs.
Where Does the Money Go?
Sales taxes are not federal. Each state controls how much it charges for sales tax — if anything — one reason why rates vary so much from state to state, or even from city to city. How states use their taxes varies, too. Together with income tax revenue, state governments spend sales tax proceeds on services such as the following:
- Public education
- Health care
- Economic development and other programs
States with alternative funding sources may not have as great a need to charge sales tax. Alaska, for example, generates a great deal of revenue from oil and gas production, and federal subsidies. Delaware has no sales tax, but does levy a gross receipts tax on businesses. This type of surcharge doesn't directly affect shoppers, though vendors may offset the charge by raising prices.
Sales-tax-free states need to compensate for the lack of revenue somehow. States like Montana, Delaware, and New Hampshire rely on income tax to fill up their coffers. (Oregon's 9.9% income tax rate is among the highest in the country.)
SEE ALSO: Did You Fall for These 9 Shopping Myths?
So, if you'll be visiting a sales-tax-free state anytime soon, be a savvy shopper. Pay attention to price tags; comparison shop and look for the same items online to gauge if a retailer is gouging its prices to compensate for the lack of sales taxes. And whether you're in a small town or big city, research local tax rates, since they may be higher than their respective state taxes.
Readers, what's the sales tax like where you live? If you reside in a state that doesn't charge sales tax, do you feel like you're saving money? Let us know in the comments below!