States With No Sales Tax (And Those that Have the Lowest)

Tennessee

• Has the second highest total sales tax at 9.55 percent.
• Does not have an individual income tax.
• Has a flat 6.5 percent corporate tax rate and imposes a gross receipts tax, meaning businesses are taxed on their total revenue without making any deductions for expenses.

Following Tennessee is Arkansas with the third-highest combined state and local sales tax (9.45 percent), Washington (9.38 percent) and Alabama (9.29 percent).

How high are sales taxes in your state?

Overall, the average combined state and local sales tax is 7.48 percent. City, county and municipal rates vary. These rates are weighted by population to compute an average local tax rate. The sales taxes in Hawaii, New Mexico and South Dakota have broad bases that include many business-to-business services.

What’s taxed and what isn’t

Although it may feel like you’re taxed on everything you buy, most states exclude specific purchases (such as groceries) from sales taxes. “That’s a huge one, because most people spend a lot of their income on groceries,” says Janelle Fritts, policy analyst at the Tax Foundation.

While each state has its own rules on what gets taxed, usually tangible goods are taxed while services aren’t. If a business sells something that’s supposed to be taxed, they’re the ones who usually collect tax from their customers and then send it to the government.

Even then, the rules can be quirky. Some states that exempt food from the sales tax will impose it on soda and candy. Louisiana taxes bottled water but not soda or candy. Groceries bought under the Supplemental Nutrition Assistance Program (SNAP), often referred to as food stamps, aren’t subject to state sales tax. All states except Illinois exempt prescription drugs from sales tax, and Illinois taxes them at just 1 percent, compared with 6.25 percent for its statewide sales tax. Several states — Connecticut, Florida, Maryland, Minnesota, New Jersey, New York, Pennsylvania, Texas, Vermont and Virginia — and the District of Columbia don’t charge sales taxes on nonprescription drugs.

If a business sells products out of state, they only have to worry about collecting sales tax if they sell over a certain threshold, usually around $100,000 in sales or a certain number of transactions.

How is sales tax determined when shopping online?

When you buy a product online, you’re supposed to pay a sales tax on it, just like when you buy things in a store, says Jared Walczak, vice president of state projects at the Tax Foundation. In the past, many online sellers didn’t have to collect that tax. Instead, consumers were supposed to pay it, but hardly anyone did.

Following the South Dakota v. Wayfair Supreme Court decision in 2018, businesses that sell a certain amount of products within a state, even if they don’t have a physical presence, were required to collect and send in the tax for those sales. It doesn’t matter if the business is in a state that doesn’t require a sales tax – they still have to handle it for other states where they meet a sufficient “nexus” of sales.

Consumers who live in a state without a sales tax typically won’t have to pay sales tax on most things they buy, whether it’s from a store or online.