Sales tax is another form of taxes used widely in the United States, which includes sales tax levied against the sale of goods and services. However, five states made exemption at the state level by excluding a particular state from imposing sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
States without Sales Tax
Sales tax is one of the most common contributors to the tax burden in most states in the United States of America. It is a consumption tax charged on most goods and services sold in the United States.
However, there are some states that have eliminated it and replaced the revenue for funding their governments with alternative sources.
The United States also has sales tax as a direct tax on the sale of goods and services. However, five states do not levy sales tax at state level: Alaska, Delaware, Montana, New Hampshire, and Oregon.
Together, they are referred to by the acronym NOMAD and present individual tax scenarios that could define consumer spending and even business activities.
Name of the States Without Sales Tax
Today, there are five states in the United States that do not have a statewide sales tax: Alaska: With the largest land area, Alaska has an economy greatly reliant on natural resources, like oil and gas.
The state did not adopt a sales tax partly because of all the revenue coming from these huge natural resources.
- Delaware: It is known for having some very favourable corporate-friendly tax laws. It was always a leading location for business, and there is no sales tax, making this destination even more attractive to the corporation and entrepreneur.
- Montana: Montana does not impose a sales tax and cites low-taxing as an essential driver in maintaining an environment-friendly for property owners and businesses. Its economy has a relatively diversified aspect with emphasis on agriculture, tourism, and manufacturing.
- New Hampshire: This state boasts one of the smallest reliance on states in the United States for revenues that depend mainly on property tax. The absence of a sales tax is basically an attraction not only for businesses but also individuals looking to live in the state that benefits from a lower cost of living.
- Oregon: Oregon abolishes sales tax, ostensibly in pursuit of the overall goal of keeping the load of taxes on the shoulder blades of its citizens. The state economy is pretty diverse in terms of technology, manufacturing, and agriculture.
Reasons for States without Sales Tax
There are following reasons for not having or abolishing sales tax in these states:
Economic Development
- Attracting Businesses: Several states believe that the imposition of a sales tax will discourage businesses from coming within their borders. A lack of a sales tax can make these states more attractive to corporations, most especially those relying heavily on consumer spending.
- Encouraging Consumer Expenditure: Some states view a consumption tax as having a deterrent impact on consumer expenditure as it becomes relatively expensive for consumers to purchase goods and services. By abolishing the sales tax, these states hope to spur economic activity and employment.
Tax Incidence
- Reducing General Tax Burden: States can choose to give up a sales tax in order to reduce general taxes imposed on their citizens and businesses. This would be very essential especially for states with higher cost of living or where residents face other heavy financial challenges.
- High-Income Taxation: Some states argue that this sales tax unduly discriminates against the low-income classes. These states can opt for a tax on properties or incomes, taxed at higher incomes.
Revenue Diversification
- Reduce reliance on a single tax source: Since states have other sources of revenue – property taxes, corporate taxes, for example-they can reduce their dependence on a single source of taxation. This will stabilise their budgets and therefore reduce the impact of business cycles.
- Tapping Natural Resources: In states like Alaska, one has great quantities of natural resources, such as oil and gas. Thus, it is no surprise that revenue from these natural resources may be a source of income.
Political and Philosophical Considerations
- Taxpayer Philosophy: In certain states, the inhabitants may be philosophically or politically committed to low taxes. Repealing a sales tax could be seen as a method of staying compliant with that commitment and maintaining the business climate optimistic.
- Historical Factors: In other circumstances, there are historical factors or peculiar circumstances under which the sales tax was passed that have motivated its repeal.