A sales tax-free state is nothing less than a dream for business owners trying to circulate their business overseas. There are a handful of states in the USA that apparently offer you to do business freely without a sales tax obligation. But are they completely free of sales tax?
At present, 5 states of the USA offer no sales tax on their consumers. These 5 states together popularly known as NOMAD distinguish themselves through eschewing sales tax impositions. These exemptions make these states extremely favourable for retailers and consumers. However, you must proceed after knowing the pros, cons and hidden costs in such a sales tax state to make a sound business decision.
What is a No Sales Tax State?
Sales tax is an indirect tax that all consumers have to pay while purchasing taxable goods and services. This percentage-based fee is imposed on the price of the products by the respected local or state judiciary. Therefore, whether an area will be sales tax-free or not excessively depends on the rules and regulations of its authority.
In most of the states around the world sales tax varies according to the type of the product and the rules of their government. However, in the 5 states of the USA, New Hampshire, Oregon, Montana, Alaska, and Delaware, there is no statewide sales tax. This means the residents or retailers here do not have to pay or calculate taxes while buying and selling.
On the surface level, it may sound sweet to not be obliged to pay extra money on sales tax. But in reality, the scene is not that tempting. There are pros as well as cons which you can like with states with no sales tax.
The Pros of Moving to a State With No Sales Tax
There are multiple benefits of moving your business into a state with no sales tax. These are;
- Low Retail Costing: The prime benefit of not having a sales tax is that you can sell your products at a very cheap rate. This means you can sell any product or service; may it be a television or groceries exactly what is written in the price tag.
These low rates will make your deals more lucrative, grabbing the attention of more new consumers. Many tourists visit especially in these states to purchase products at a cheaper rate. This makes these states a commercial hub and prosperous marketplace for both buyers and sellers.
- Predictable Spending and Budgeting: Your annual taxation budgeting and filing becomes way too easy with no sales tax calculations on it. There will be no complex counting and adding up of fees on selling products. Therefore, you will be able to plan your monthly or yearly spending with more accuracy. So, the lack of sales tax
- Provides Competitive Edge: For business owners who are beginning their careers, these tax-free regions can be heaven. With no tax calculations, you will not have to be dependent on a specialized team for tax calculation, and collection and report them to the government. This will lower your overhead cost helping you to win over your competitors by offering an attractive deal without the burden of sales tax.
- Advantageous for Big Purchases: In case of big amount purchases such as a car or a luxurious wristwatch, you will have to pay a good amount from your pocket as a tax. For instance, if you purchase a car with $30,000 and a 7% sales tax rate, it will cost you an extra amount of $2,100 as the sales tax. But in these 5 states of the USA, you will not have to pay that extra money.
The Cons of Moving to a No Sales Tax State
Though the sales taxes are free, other factors may not be that favourable for you here. These are;
- Other Taxes are Higher: The states that don’t levy sales taxes rely extremely on income and property taxes to generate their revenues. Therefore, purchasing a property here may seem to you extremely costly. A higher income tax rate will also significantly cut short your annual profit from here.
- Local Sales Taxes: states like Oregon do not have statewide or local sales taxes. But Alaska, on the other hand, allows its city municipalities to impose their own local taxes.
- Higher Excise Taxes: to make up for the lack of sales tax some states levy excise taxes on objects like alcohol, tobacco and gasoline. So, your savings from sales taxes will somewhat get absorbed in paying these high rates of additional taxes.
Conclusion
To sum up, the question of whether you should move to a state with no sales tax depends excessively on your business priorities. If you want to manage your business by creating a nexus offshore, then these no-sales-tax states will largely boost it. But you will also have to pay considerably to purchase a shop or factory here due to higher property and hidden charges.
Also, Read – Understand Sales Tax Laws: Calculation, Types, and Exemptions
FAQs.
1. What are the hidden costs of living in no-sales tax states?
The hidden costs of living in the no sales tax states include; higher property taxes, excise taxes and higher income taxes. States like Alaska levy local sales taxes though there are no statewide taxes.
2. Why do no sales tax states have higher property taxes?
States with low sales taxes often levy higher property taxes on the citizens. States like New Hampshire take high charges on property dealing to compensate for the loss of revenue from sales tax.
3. Do all parts of Alaska have no sales tax?
No, many municipality areas of Alaska have local inherent sales taxes. The rate of these local taxes often ranges from 1 to 7%. However, there is no statewide unified sales tax in Alaska.
4. Will I pay high-income tax if move to no-sales tax states?
Whether you will have to pay a higher income tax or not will depend entirely on which state you are selecting. Oregon for instant has one of the highest income tax rates but on the other hand New Hampshire has no income tax on wages.
