The Final 5: Alaska, Delaware, Montana, New Hampshire, Oregon
What you should know about the ‘no state sales tax states’.
Thanks to Avalara, the 'tax people', Insightful Accountant has spent the past year publishing these 'Sales Tax Tuesday' stories covering sales tax issues associated with each state sales tax jurisdiction in the United States. Not only have we hopefully illustrated how those jurisdictions that make use of Sales tax as a source for critical revenue for states, counties and municipal jurisdictions, but hopefully you have learned a little about the history, demographics and character of each jurisdiction we covered.
Other than property and income tax, sales tax is the largest source of tax revenue in the majority of the 46 jurisdictions that collect it. From a government perspective, making sure every sales tax dollar is collected, through audits, fines, penalties rates and rules, is an exercise for income. It’s easy to be lured into a false sense of compliance when it comes to sales tax, this series was written with the intention of helping insure that you are aware of the key sales tax facts for YOUR state.
Note: For sales tax definitions and essentials check out the opening article to this series.
So what about the 5 states that don't have state-wide sales and use taxes? Well yes, there are five U.S. states do not have state sales and use tax. They are Alaska, Delaware, Montana, New Hampshire and Oregon. But that doesn’t mean they’re tax-free zones.
Here’s a quick roundup of each of the five and what businesses should be aware of when it comes to taxation and compliance:
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Alaska
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Even though the state doesn’t impose sales and use tax, some jurisdictions have local sales tax, which can be as high at 7%. Live there long enough and it could pay off: certain cities in Alaska exempt senior citizens from paying sales tax. Age, income criteria, and product exemptions vary by jurisdiction. Alaska doesn’t have an income tax either, which just leaves property taxes. Alaska’s biggest source of revenue? Oil tax and royalties.
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Delaware
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The state prominently promotes its sales-tax free status – which irks neighboring states like Pennsylvania and Maryland that loses revenues from shoppers who cross the border to shop. Delaware does impose a gross receipts tax. Retailers can deduct the first $100,000 each month prior to paying the tax. Delaware also has a low 8.7% flat tax on corporations – which is most likely the reason that half of all publicly traded companies in the U.S. are incorporated there (including 64% of the Fortune 500).
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Montana
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The state has no general sales tax, but some towns with high tourism rates are allowed to levy a local resort tax on retail sales, food and lodging. This has led to other, larger towns pushing for a local sales tax option, but so far lawmakers have held firm on no sales tax and attempts by cities to get one enacted have failed. High income taxes offset the lack of sales tax, but many localities would still like the revenues from a local sales tax, especially since Montana doesn’t draw a lot of shoppers from neighboring states.
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New Hampshire
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The “live free or die” state takes this motto seriously. New Hampshire doesn’t have sales tax or income tax. But that’s only for permanent residents. And it makes up for it with steep property taxes. New Hampshire also has a Meals and Rooms Rental Tax of 9% that applies to patrons of hotels (or any facility with sleeping accommodations), restaurants, rooms and meals costing more than 36 cents. Its close proximity to Boston also draws shoppers trying to bypass Massachusetts’ 6.25% sales tax.
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Oregon
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While there is no statewide sales tax in Oregon, local municipalities may impose sales taxes if they choose to do so. Ashland, for example, has a 5% sales tax on prepared food. Additionally, the state allows businesses to pass certain excise taxes on to consumers. These include local lodging tax (plus a 1% state lodging tax), tax on tobacco products, and a “privilege tax” on beer, wine and spirits. Oregon also has a high state income tax. This is the polar opposite of neighbor to the north, Washington state, which has a high sales tax but no state income tax.
And so that is just about a 'wrap', we have now covered all 50 states plus Washington, DC in our series.
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Did you know:
Manual sales and use tax management is prone to errors. Sales tax collection, accounting, remittance and reporting also consumes valuable staff time in what can only be described as pass-through rather than revenue-generating activities. But there is an easier way, Avalara provides solutions for sales tax automation, including tax calculation, exemption certificate management, returns processing and 1099 filing and reporting. Automation via AvaTax allows businesses to be fully sales tax compliant without sacrificing productivity.
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Personal Comments from the Editor:
I want to take this opportunity, since this is the very last edition of 'Sales Tax Tuesday' (at least for 2015) to express my appreciation for 'everyone' at Avalara who has worked on this series. So many members of the Avalara staff have contributed their time, energies, hearts and souls to this series, and it has been a most worthwhile effort. Insightful Accountant has received numerous comments, thanks, updates, and even a few (very few at that) concerns expressed over the 50-weeks we have published this series. We couldn't have done it without the fabulous technical content 'our tax experts' Avalara have provided.
(Note: If you are a resident of, or work in, one of the 5 states in today's article and thought you were going to see a full 'feature log' on your state (or any of these states), 'no way', you will just have to convince your state to adopt 'state-wide' sales and use taxes if you want to see a full feature on 'your' state sometime in the future.)