Five states have no sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon

These five states do not charge a statewide sales tax on purchases. That means when you buy something in one of these states, you pay only the price on the tag — no additional percentage gets added at checkout. However, the absence of sales tax does not mean these states have no taxes at all. Most of them collect revenue through other methods, like income tax, property tax, or business taxes.

If you live in one of these states, you still file federal income tax returns the same way as anyone else. Your state tax situation depends on whether that state taxes income. If you are considering a move or trying to understand your current state's tax structure, knowing which taxes explore where matters for planning.

Key Takeaways

  • Alaska, Delaware, Montana, New Hampshire, and Oregon have no statewide sales tax, though some allow local sales taxes.
  • No sales tax does not mean no state income tax — New Hampshire and Tennessee tax investment income, while Alaska, Delaware, and Montana do not tax income at all.
  • If you buy something online from a no-sales-tax state and have it shipped to a state that does tax sales, you may owe sales tax in your home state.
  • Property tax, business tax, and other revenue sources replace sales tax revenue in states without it.

How each no-sales-tax state handles income tax

Alaska has no state income tax and no statewide sales tax. Some cities and boroughs in Alaska do charge local sales taxes that range from 0% to 7.5%, so your total tax depends on where you shop. Alaska funds state government partly through oil revenue and a sovereign wealth fund.

Delaware has no state sales tax and no state income tax. This is why many businesses incorporate in Delaware — the state relies on corporate franchise taxes and business licensing fees instead. If you live in Delaware and work there, you do not pay state income tax on wages.

Montana has no sales tax but does tax income. Montana's state income tax rates range depending on your income level. If you live in Montana, you file a state income tax return even though you pay no sales tax.

New Hampshire has no sales tax but taxes investment income and retirement income. It does not tax wages or salaries. If you work in New Hampshire, you do not pay state income tax on your paycheck, but if you have dividend income or interest income, you file a state return for that.

Oregon has no sales tax but does tax income. Oregon's state income tax applies to wages, self-employment income, and other earnings. If you live in Oregon, you file a state income tax return.

Local sales taxes in no-sales-tax states

Even though these five states have no statewide sales tax, some cities and counties within them do charge local sales taxes. This is most common in Alaska, where local rates vary widely. Delaware, Montana, New Hampshire, and Oregon generally do not allow local sales taxes, though rules can change.

If you live in or shop in one of these states, check your city or county rules to see whether a local sales tax applies. The tax rate, if it exists, will be added to your purchase at checkout just like a statewide tax would be.

What happens when you buy from a no-sales-tax state and ship to your home state

If you order something online from a retailer in Alaska, Delaware, Montana, New Hampshire, or Oregon and have it shipped to your home state, you generally owe sales tax in your home state, not the seller's state. This is called use tax, and it applies to purchases you make outside your state and bring or ship home.

Most people do not pay use tax voluntarily — it is rarely enforced for individual purchases. However, if you buy something large or expensive (like a car) out of state, your home state may require you to pay use tax when you register it or title it. Some states also ask about use tax on your income tax return, though compliance is low.

If you are a business owner buying inventory or equipment from a no-sales-tax state, the rules are stricter. You may need to document the purchase and pay use tax to your home state, or your accountant may handle this when filing your business return.

How no-sales-tax states replace that revenue

States without sales tax need other sources of income to fund schools, roads, and government services. The methods vary by state. Alaska uses oil revenue and the Alaska Permanent Fund. Delaware relies heavily on corporate taxes and business fees. Montana, New Hampshire, and Oregon all use income tax instead of sales tax.

This means that even though you avoid sales tax in these states, you may pay higher income tax or property tax than you would in a state with sales tax. There is no universal "cheapest" state to live in — the total tax burden depends on your income, property value, and spending habits.

Reporting no-sales-tax purchases on your federal return

You do not report individual purchases on your federal tax return. Federal income tax does not care whether you paid sales tax or not. However, if you are self-employed or own a business, you can deduct sales tax you paid on business purchases as part of your business expenses, regardless of which state you bought them in.

If you live in a state with income tax and that state allows a deduction for sales tax paid (instead of state income tax), you would claim that on your state return, not your federal return. This is a state-level choice, not a federal one.

Frequently Asked Questions

Do I have to move to a no-sales-tax state to avoid sales tax?

No. Sales tax applies where you live and shop, not where you work or where a business is located. If you live in a state with sales tax, you pay it on most purchases there, even if you order from a no-sales-tax state. Moving for tax reasons alone is rarely worth the cost unless you are also relocating for work or other reasons.

Can I claim sales tax on my federal return if I live in a no-sales-tax state?

No. Federal returns do not include a line for sales tax paid. If your state allows you to deduct sales tax instead of state income tax, that deduction goes on your state return only. Since no-sales-tax states do not have sales tax to deduct, this does not explore to you.

If I buy a car in a no-sales-tax state, do I owe tax when I bring it home?

Yes, most likely. When you register or title a car in your home state, you usually owe use tax on the purchase price if your home state has a sales or use tax. The amount depends on your state's rate. Some states credit sales tax you already paid in another state, so check your state's rules before buying out of state.

Does Alaska's oil dividend count as income for federal taxes?

The Alaska Permanent Fund Dividend is taxable income on your federal return. You report it on Form 1040 as other income. Alaska does not tax it as state income, but the IRS does count it toward your federal taxable income.

Why does New Hampshire tax investment income but not wages?

New Hampshire chose this structure to attract workers and businesses while still collecting revenue from investment income and retirement accounts. It is a deliberate policy choice. If you work in New Hampshire but have investment income, you file a state return only for the investment income portion.