All 50 states make different choices about where they're going
to get the tax revenue they need in order to provide the services
their residents expect and demand. With income taxes, property
taxes, and sales taxes among the revenue-collecting tools at
their disposal, most states end up using a combination of all
three to make ends meet.
But some states have chosen not to impose any sales tax at the
state level, making it a lot cheaper for shoppers to buy. Using a
combination of figures from the Tax Foundation, including general
state sales taxes and average local-option surtaxes, let's look
at the five states that don't have statewide sales taxes with an
eye toward identifying the impact their decision has on
individuals and businesses.
Although Alaska doesn't have a statewide tax, it does have local
option taxes that amount to an average rate of 1.69%. Alaska
doesn't have an income tax, either, relying solely on property
taxes for its sole means of support from individuals. The lion's
share of state revenue, however, comes from royalties and oil tax
, all of which have extensive operations in the state. Even
recent tax cuts on those oil giants hasn't added to residents'
share of the overall tax burden, and residents also receive
checks from the Alaska Permanent Fund amounting to $878 per
person in 2012.
Like Alaska, Montana also has local-option resort taxes in
certain areas of the state, but the Tax Foundation lacked
adequate data to measure the average impact of those add-on
taxes. Yet many of the most populous areas of the state,
including Billings, Bozeman, and Missoula, don't have any sales
taxes at all. Given that state's remote location, however, having
no sales tax doesn't do much to draw shoppers from neighboring
states. Fairly high income taxes offset the lack of sales
3. New Hampshire
With the moniker "Live Free or Die," New Hampshire gives
residents a double-tax break, with no sales tax and an income tax
that applies only to interest and dividend income. High property
taxes make up the difference, but New Hampshire's proximity to
Boston leads to a regular exodus of shoppers across the
Massachusetts border to avoid that state's 6.25% sales tax.
Delaware is a small state, but it plays a vital role in providing
a home for most of the nation's largest corporations. The state's
8.7% flat corporate income tax rate leads to tax collections that
are the seventh highest in the country and help allow Delaware to
charge no sales tax. Nearby Philadelphia and Baltimore provide
two sources of shoppers seeking tax-free purchases, but shopping
malls strategically located on the Interstate 95 corridor do
their best to pull in travelers from all over the East Coast.
Of all the sales-tax-free states, Oregon has the closest
symbiotic relationship with its neighbor. Washington lies just
across the Columbia River from Portland, and the states are
near-mirror-images of each other when it comes to taxation, with
Washington having a high sales tax but no income tax, while
Oregon has a high income tax but no sales tax. As a result, those
living in Vancouver, Wash., across the river from Portland, can
structure their lives to pay relatively little in income
sales taxes, taking advantage of their proximity to Oregon
A better way to tax?
Many tax advocates believe that sales taxes are the worst way to
tax residents, as their consumption focus tends to hit the poor
the hardest. By that measure, these five states are most
forward-thinking in their tax strategies, although they also
clearly believe that they can attract some economic activity by
luring shoppers in with tax-free purchase opportunities.
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