States with the Lowest Sales Tax

By Jeri McBryde , last updated July 2, 2011

States with the lowest sales tax are the best states for stretching your income. Paying taxes is a part of the American way of life, but money goes further when you don’t have to pay state sales tax. Sales taxes vary from state to state, as the state and local governments set rates. The federal government has no involvement in setting or collecting state sales taxes.

The merchant charges the customer sales tax on the purchase amount. The shopkeeper collects both state and local taxes. He then either sends the tax amounts to the state government, which in turn separates the local tax or he sends the state and local monies to the individual agencies.

There are five states that have no state sales tax, Alaska, Delaware, Montana, New Hampshire and Oregon. One thing you have to take in consideration is that states may also have local and county taxes. Alaska does allow local sales taxes, for example Juneau has a 5% city tax. The other four states do not allow local sales tax, therefore they are true zero sale tax states.

Although nothing is better than zero sales tax, you may want to consider the top five states with the lowest state sales tax and local taxes combined. As of January 1 2011, the following states came in with these tax amounts: Hawaii 4.35%, Maine 5%, Virginia 5%, Wyoming 5.3% and South Dakota 5.22%.

Those states with sales taxes often exempt certain purchases. Most states will exclude prescription drugs from being taxed. A few will exclude non-prescription drugs and food. Hawaii exempts prescription drugs. Maine excludes food along with prescription drugs. Wyoming also excludes food and prescription drugs. South Dakota exempts prescription drugs only. Virginia has no sales tax on prescription drugs and non-prescription drugs.

Virginia is also the only one of the top five states with low sales tax to have tax holidays. Virginia has three sale taxes holiday. May 24-31, 2011 allows hurricane and emergency preparedness equipment to be exempt. There are limits on the price of eligible items. August 5-7, 2011 is a back to school sales tax holiday. Eligible School supplies not to exceed $20.00 and clothing up to $100.00 per item are free from sales tax. October 6-10, 2011 will exempt sales taxes on Energy Star and Water sense energy efficient qualified products.

If you plan on going shopping in any of these or other states, always check to see if there have been any changes to the sale tax rates and programs before heading to the cash register.

It doesn’t hurt to save those sales receipts. You may be able to claim the sales tax on your Federal Income Tax, if you itemize deductions. Check with your accountant or tax expert.

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