In this article, we will look at the 16 states with the lowest or no sales tax. If you want to skip our detailed analysis, you can go directly to the 5 States With the lowest Or No Sales Tax.
US Sales Tax
The US tax system stands out among OECD countries because of its tax structure. The highest contributors to the US tax revenue are individual income taxes and social security contributions, with a share of 42.1% and 23.8% respectively. The US tax system relies heavily on income and property taxes, compared to the other developed nations. However, it avoids consumption taxes such as VAT. Instead, it relies on state and local sales tax, with relatively lower rates but broader bases. Retail sales taxes are a crucial part of the tax revenue of the states. It accounts for 16.6% of the total tax revenue, compared to the OECD average of 32.2%. A total of 45 US states and the District of Columbia implement state-level sales tax, however, 38 states impose local sales taxes as well.
As of January 2024, California holds the highest statewide sales tax rate of 7.25%, followed by four states with tax rates of 7%. Five states in the country do not impose sales tax, except Alaska as it does not impose statewide sales tax but has a local tax rate of 1.82%. Colorado has the lowest statewide sales tax rate of 2.9%. The local sales tax rates for the top five states remain unchanged, with Alabama having the highest local tax rate of 5.29%. States such as Minnesota and Wisconsin witnessed a decline in rankings since July 2023, because of the local tax hikes in major cities. The local tax rate increased in the states due to an increase of 1% in the rates of the seven-county Twin Cities metro area in Minnesota and a 2% increase in the tax rates in Milwaukee, Wisconsin. The local sales tax rates increased in states such as California, Maine, New Mexico, Ohio, and Illinois among others, due to the competitive tax rates increase in peer states.
16 States With the Lowest Or No Sales Tax
Methodology
To compile our list of the 16 states with the lowest or no sales tax, we consulted the January 2024 report by Tax Foundation, which provides the latest state sales tax, local sales tax, and the combined sales tax rates of all the US states. We have ranked the US states in ascending order of their latest 2024 combined sales tax rates, and have listed both state and local sales tax rates for each state. We utilized the state-wise population estimates of 2023, sourced from the US Census Bureau, to break the tie between states having the same combined sales tax rates.
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16 States With the Lowest Or No Sales Tax
16. Massachusetts
State Sales Tax Rate (2024): 6.25%
Average Local Sales Tax Rate (2024): 0%
Combined Sales Tax Rate (2024): 6.25%
Population (2023): 7,001,399
Massachusetts is ranked among the states with the lowest or no sales tax. The state has a state-wide sales tax rate of 6.25%, as of January 2024. The state does not impose local sales tax. The population of the state is 7,001,399, as of 2023.
15. South Dakota
State Sales Tax Rate (2024): 4.20%
Average Local Sales Tax Rate (2024): 1.91%
Combined Sales Tax Rate (2024): 6.11%
Population (2023): 919,318
Ranked 15th on our list, South Dakota has a state sales tax rate of 4.2% and an average sales tax rate of 1.91%, as reported by the Tax Foundation. The population of the state is 919,318, as of 2023.
14. Idaho
State Sales Tax Rate (2024): 6%
Average Local Sales Tax Rate (2024): 0.03%
Combined Sales Tax Rate (2024): 6.03%
Population (2023): 1,964,726
Idaho is one of the US states with the lowest sales tax. As of January 2024, it has a statewide sales tax of 6%. The state, however, has a nearly 0% local tax rate. Its population is 1,964,726, as of 2023.
13. Kentucky
State Sales Tax Rate (2024): 6%
Average Local Sales Tax Rate (2024): 0%
Combined Sales Tax Rate (2024): 6%
Population (2023): 4,526,154
Kentucky is ranked among the states with the lowest or no sales tax. The state has a statewide sales tax rate of 6%, as of January 2024. The state does not impose local sales tax. The population of the state is 4,526,154, as of 2023.
12. Maryland
State Sales Tax Rate (2024): 6%
Average Local Sales Tax Rate (2024): 0%
Combined Sales Tax Rate (2024): 6%
Population (2023): 6,180,253
Maryland ranks 12th on our list. The state levies a statewide sales tax rate of 6%. However, it does not impose local sales tax. As of 2023, the state has a total population of 6,180,253, as of 2023.
11. Michigan
State Sales Tax Rate (2024): 6%
Average Local Sales Tax Rate (2024): 0%
Combined Sales Tax Rate (2024): 6%
Population (2023): 10,037,261
Michigan is one of the US states with the lowest sales tax. As of January 2024, it has a statewide sales tax of 6%. The state, however, does not implement local tax rates. According to the US Census Bureau, its population is 10,037,261, as of 2023
10. Virginia
State Sales Tax Rate (2024): 5.30%
Average Local Sales Tax Rate (2024): 0.47%
Combined Sales Tax Rate (2024): 5.77%
Population (2023): 8,715,698
Virginia is ranked among the states with the lowest or no sales tax. The state has a statewide sales tax rate of 5.3% and a local tax rate of 0.47%, as of January 2024. The population of the state is 8,715,698, as of 2023.
9. Wisconsin
State Sales Tax Rate (2024): 5%
Average Local Sales Tax Rate (2024): 0.70%
Combined Sales Tax Rate (2024): 5.70%
Population (2023): 5,910,955
Wisconsin ranks 9th on our list. The state imposes a statewide sales tax rate of 5% and a local sales tax rate of 0.7%. As of 2023, the state has a total population of 5,910,955, as of 2023.
8. Maine
State Sales Tax Rate (2024): 5.5%
Average Local Sales Tax Rate (2024): 0%
Combined Sales Tax Rate (2024): 5.50%
Population (2023): 1,395,722
Maine is one of the US states with the lowest sales tax. As of January 2024, it has a statewide sales tax of 5.5%. The state, however, does not implement local tax rates. Its population is 1,395,722, as of 2023
7. Wyoming
State Sales Tax Rate (2024): 4%
Average Local Sales Tax Rate (2024): 1.44%
Combined Sales Tax Rate (2024): 5.44%
Population (2023): 584,057
Wyoming ranks 7th on our list. The state charges a statewide sales tax rate of 4% and a local sales tax rate of 1.44%, as of January 2024. The state has a total population of 584,057, as of 2023.
6. Hawaii
State Sales Tax Rate (2024): 4%
Average Local Sales Tax Rate (2024): 0.50%
Combined Sales Tax Rate (2024): 4.50%
Population (2023): 1,435,138
Hawaii is ranked among the states with the lowest or no sales tax. The state has a statewide sales tax rate of 4% and a local tax rate of 0.5%, as of January 2024. According to the US Census Bureau, the population of the state is 1,435,138, as of 2023.
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Disclosure: None. 16 States with the Lowest Or No Sales Tax is originally published on Insider Monkey.