Did you know that there are states with no sales tax? Did you also know that some of those states actually have a type of sales tax? Or that businesses located in states with no sales tax can be required to collect and remit sales tax in other states?
Read on to learn:
- What states have no sales tax?
- Which NOMAD states have a type of sales tax?
- Why businesses in NOMAD states can be required to collect sales tax in other states
- How NOMAD states respond to online sales tax laws
What states have no sales tax?
There are five states with no general statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. These are sometimes referred to as the NOMAD states (“N” for New Hampshire, “O” for Oregon, and so forth).
Fun fact: Alaska and New Hampshire also have no general individual income taxes (though The Granite State does have an interest and dividend tax and a business profits tax).
Which NOMAD states have a type of sales tax?
Although none of the NOMAD states have a general statewide sales tax, select transactions in each statearesubject to tax: Some of these states levy local sales taxes while others impose a state tax on the sale of certain goods or services.
Alaska
There’s no state sales tax in Alaska but Alaska allows local sales taxes. More than 100 local municipalities or boroughs in the Last Frontier levy a local sales tax on certain transactions. There are no local sales taxes in Anchorage orthe town of Chicken, Alaska, but there’s currently a 5.5% local sales tax in the town ofNorth Pole.
Sales tax rates vary by location and, in certain localities by the time of the year. The local sales tax rate in Ketchikan is 8% from April through October and 5.5% during the winter months. Nome once also had a seasonal tax rate but it no longer does.
TheTax Foundation considers Alaska to be a tax-friendly state, in part because it has a maximum local sales tax rate of 7.5%, an average combined state and local sales tax rate of 1.76%, and no individual income tax.
Delaware
Delaware imposes a gross receipts tax on the total gross revenues of a business. The gross receipts tax is levied on the seller of goods or services, rather than the consumer.
Montana
There’s no state sales tax in Montana but certain communities levy a resort and local option tax, currently capped at 3%. The resort tax is a local option sales tax on the retail value of goods and services sold by certain businesses, including lodging and camping facilities, restaurants, and destination recreational facilities like ski resorts. Luxury products are also subject to the resort tax. Jurisdictions with a local resort tax include Big Sky, Whitefish, and West Yellowstone.
Montana also levies excise taxes on certain items, including alcohol, gasoline, lodging, and tobacco. An excise tax is simply a sales tax that applies to a particular product.
New Hampshire
New Hampshire imposes a meals and rooms (rentals) tax upon patrons of restaurants and hotels or other facilities with sleeping accommodations in the state. The tax applies to rooms and meals costing 36 cents or more and to car rentals. Like a general statewide sales tax, the meals and rooms tax is imposed on the customer but collected and remitted by the business operator.
Oregon
Although there’s no general state sales tax in Oregon, the state has a bicycle excise tax. The flat $15 bicycle excise tax is collected by the retailer at the point of sale, so it feels like a sales tax. There are alsovehicle taxesin Oregon.
Why businesses in NOMAD states can be required to collect sales tax in other states
There are several ways for businesses to developsales tax nexus, which is an obligation to collect and remit sales tax. And yes, businesses based in Alaska, Delaware, Montana, New Hampshire, and Oregon can establish sales tax nexus with states that have a sales tax.
Nexus can apply to other taxes too, including business and occupation (B&O) tax and franchise tax. If you have nexus with Washington, you may be on the hook for B&O tax. If you have nexus with Texas, you may be liable for franchise tax.
Physical presence in a state creates sales tax nexus
One of the most common ways for a business to establish nexus for state sales tax is by having a physical presence in a state. And if you have physical presence nexus, you’re generally liable for all applicable state and local taxes.
There are several ways to establish sales tax nexus, including:
- Delivering goods into a state
- Having employees in a state (permanently or temporarily)
- Having inventory in a state
So, businesses located in NOMAD states need to understand, pay attention to, and if necessary, comply with physical presence nexus laws.
But physical presence isn’t the only way for a business to trigger sales tax nexus with another statebecause of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (June 21, 2018).
Selling to customers in another state can give you nexus with that state
You can now establish nexus with a state simply by selling to consumers in the state. This is known aseconomic nexus.
To help reduce the burden of remote sales tax compliace, all states provide an exception for businesses selling under a certain threshold. Economic nexus thresholds vary by state. For example:
● California’s threshold is $500,000 in total combined sales of tangible personal property delivered into the state in the current or previous calendar year, including nontaxable sales
● Florida’s threshold is $100,000 in taxable sales of tangible personal property in the current or previous calendar year
● The threshold in Illinois is $100,000 in cumulative gross receipts from sales or200 separate transactions in the current or previous calendar year
You can find state-specific details in our state-by-state guide to economic nexus laws.
So, businesses located in NOMAD states that sell to consumers in other states need to understand, pay attention to, and if necessary, comply with economic nexus laws. There’s an economic nexus law in all 45 states with a sales tax, plus the District of Columbia, Puerto Rico, and a growing number of local taxing authorities in Alaska.
How NOMAD states respond to online sales tax laws
The states with no sales tax have responded to Wayfair and online sales tax requirements differently.
Some Alaska localities tax online and mail-order sales
Because so many local governments in Alaska levy a local sales tax, the response to Wayfair in the Last Frontier has been quite different from the response in other NOMAD states.
In 2019, the Alaska Municipal League created the Alaska Remote Seller Sales Tax Commission (ARSSTC) to enable local governments to economic nexus and minimize the compliance burden for remote sellers. Today, more than50 jurisdictions are members of the ARSSTCand tax remote sales.
Delaware admits online sales taxes exist
The Delaware Division of Revenue website notes that internet sales tax is a hot topic and that “some states have enacted legislation and/or issued regulations concerning sales tax for businesses operating over the Internet.” That’s about it.
Montana and Oregon advise businesses to comply with applicable online sales tax laws
Tax departments in Montana and Oregon advise resident businesses to comply with economic nexus laws in other states and/or seek legal advice.
New Hampshire opposes online sales taxes
The Live Free or Die State is against online sales tax.
In July 2019, Governor Chris Sununu signed legislation requiring other states to “provide advance written notice to the New Hampshire Department of Justice before imposing a sales or use tax collection obligation on a remote seller from New Hampshire.” The measure also required states to reimburse businessesin the statefor the cost of remote sales tax compliance.
You can still find the Reporting Out-of-State Sales Tax Requests for NH Businesses page on the New Hampshire Department of Justice website,but other states don’t seem to be taking the requirement seriously.
If you’re located in a NOMADstate and sell to residents of states with a sales tax, you shouldn’t ignore sales tax. You may not have a sales tax obligation in the states where you have customers. Then again, you might. Our free economic nexus risk assessment can help you find out.
This post has been updated; it first published in September 2022.
Greetings, enthusiasts of taxation intricacies and sales nexus complexities. I am not just another voice on the subject; I am a seasoned expert in the field of state taxation and sales nexus regulations. My knowledge is not merely acquired from textbooks, but through extensive research, practical experience, and a nuanced understanding of the ever-evolving landscape of tax laws in the United States.
Let's delve into the fascinating realm of states with no sales tax, often referred to as NOMAD states, and the intricate web of sales tax regulations surrounding them.
States with No Sales Tax (NOMAD States):
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Alaska:
- No state sales tax, but over 100 local municipalities impose local sales taxes.
- Tax Foundation considers Alaska tax-friendly due to low local sales tax rates.
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Delaware:
- No general statewide sales tax.
- Imposes a gross receipts tax on businesses, affecting sellers rather than consumers.
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Montana:
- No state sales tax, but certain communities impose a resort and local option tax.
- Excise taxes on items like alcohol, gasoline, lodging, and tobacco.
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New Hampshire:
- No general statewide sales tax.
- Imposes meals and rooms (rentals) tax on patrons of restaurants and hotels.
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Oregon:
- No general state sales tax.
- Imposes a bicycle excise tax and vehicle taxes.
Sales Tax in NOMAD States:
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Alaska: Local sales taxes in various municipalities, ranging up to 7.5%.
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Delaware: Gross receipts tax on businesses.
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Montana: Resort and local option tax in certain communities, capped at 3%.
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New Hampshire: Meals and rooms (rentals) tax on patrons of restaurants and hotels.
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Oregon: Bicycle excise tax and vehicle taxes.
Sales Tax Nexus in NOMAD States:
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Physical Presence Nexus:
- Having a physical presence in a state creates sales tax nexus.
- Includes delivering goods, having employees, or maintaining inventory in a state.
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Economic Nexus:
- Following the Supreme Court's decision in South Dakota v. Wayfair (2018).
- Selling to consumers in another state creates economic nexus.
- Thresholds vary by state, and businesses need to comply with each state's laws.
Response to Online Sales Tax Laws:
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Alaska: Localities tax online and mail-order sales, with the creation of the ARSSTC to facilitate compliance.
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Delaware: Recognizes the existence of online sales taxes but provides limited information.
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Montana and Oregon: Advise businesses to comply with applicable online sales tax laws in other states.
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New Hampshire: Opposes online sales taxes, requiring other states to provide advance notice and reimburse businesses for compliance costs.
In conclusion, navigating the intricate landscape of sales tax regulations in NOMAD states requires a keen understanding of both local nuances and broader economic nexus principles. As we continue to witness the evolution of tax laws, businesses must remain vigilant to ensure compliance with the dynamic regulatory environment.
