A shopper walks into a store with a ladder. Visibly surprised, the storekeeper asks, “What did you bring a ladder for?” The shopper responds, ‘The sales tax here is so high, I need this to reach it!” While this might give you a chuckle, for many business owners and consumers alike, high sales tax is no laughing matter. It means spending so much more (paying more taxes) when you don’t have to. But hey, don’t worry; it is not all doom. There are states where you won’t need that proverbial ladder because the sales tax is refreshingly low. From sunny beaches to rugged mountain territories, today we bring you ten states with the lowest sales tax rates in the U.S. Whether you’re planning to move, start a business, or just do some shopping, knowing these states could lead to significant savings.
Now, grab your seat belt and enjoy the ride.
- Massachusetts
Massachusetts has a state sales tax rate of 6.25% and doesn’t add any local sales taxes. Massachusetts is not just a place full of history; it’s also where some of the smartest people go to school. It has famous universities like MIT and Harvard, which makes it a great place for businesses, especially new tech companies, to start and grow.
2024 State Sales Tax Rate: 6.25%
Average Local Sales Tax Rate: 0%
Total Sales Tax Rate: 6.25%
- South Dakota
South Dakota offers a combined sales tax rate of 6.11%, with a state rate of 4.20% and an average local rate of 1.91%. South Dakota is a good place for business owners because it doesn’t charge corporate income tax, which helps with keeping more profits.
2024 State Sales Tax Rate: 4.20%
Average Local Sales Tax Rate: 1.91%
Total Sales Tax Rate: 6.11%
- Idaho
Idaho has a state sales tax of 6% and almost no local tax, adding up to a total of 6.03%. Idaho is not just famous for its potatoes but also has a lot of manufacturing jobs, especially in making tech products and other goods, which provides lots of opportunities for businesses.
2024 State Sales Tax Rate: 6%
Average Local Sales Tax Rate: 0.03%
Total Sales Tax Rate: 6.03%
- Kentucky
Kentucky also has a 6% sales tax across the state with no local taxes. Kentucky is a strategic spot for businesses that send products all over the country because it’s located in the middle of many big cities in the United States, making shipping and travel easier.
State Sales Tax Rate (2024): 6%
Average Local Sales Tax Rate (2024): 0%
Combined Sales Tax Rate (2024): 6%
- Maryland
Maryland keeps things simple with a 6% state sales tax and no local taxes. Maryland is close to Washington D.C., which is great for businesses that work with the government or are involved in industries like defense, health, and technology, due to its highly educated workforce and business opportunities.
2024 State Sales Tax Rate: 6%
Average Local Sales Tax Rate: 0%
Combined Sales Tax Rate: 6%
- Michigan
Michigan has a state sales tax of 6% and no local sales taxes. Michigan is known as the car capital of the world, making it an important place for businesses that are into building cars or parts for cars. It’s also getting a lot of new businesses in tech and health fields.
2024 State Sales Tax Rate: 6%
Average Local Sales Tax Rate: 0%
Total Sales Tax Rate: 6%
- Virginia
Virginia has a state sales tax rate of 5.3% and a local tax rate of about 0.47%, making a combined rate of 5.77%. Virginia is not just great for its low taxes; it’s also known for its strong tech industry, especially in areas like software and defense. Many tech companies are located here because of the skilled workforce and proximity to Washington, D.C., making it a strategic place for growing businesses.
2024 State Sales Tax Rate: 5.30%
Average Local Sales Tax Rate: 0.47%
Combined Sales Tax Rate: 5.77%
- Wisconsin
Wisconsin offers a state sales tax rate of 5% and a local rate of 0.7%, totaling 5.70%. Besides having a friendly tax rate, Wisconsin is famous for its dairy industry. It’s a leader in cheese production, which opens up lots of opportunities for businesses in food production, agriculture, and related industries.
2024 State Sales Tax Rate: 5%
Average Local Sales Tax Rate: 0.70%
Total Sales Tax Rate: 5.70%
- Maine
Maine has a straightforward state sales tax of 5.5% with no added local taxes, summing up to 5.50%. Maine is well-known for its stunning landscapes and tourism, especially for its outdoor activities and seafood. This makes it a fantastic place for businesses in the hospitality, outdoor recreation, and food sectors.
2024 State Sales Tax Rate: 5.5%
Average Local Sales Tax Rate (2024): 0%
Total Sales Tax Rate: 5.50%
- Wyoming
Wyoming boasts a low state sales tax of 4%, with a local tax adding up to 1.44% for a combined rate of 5.44%. Wyoming’s appeal goes beyond low taxes; it has no corporate or personal income taxes, which is a big win for business owners. Plus, it’s a top destination for outdoor activities like hiking and skiing, making it ideal for adventure and outdoor businesses.
2024 State Sales Tax Rate: 4%
Average Local Sales Tax Rate: 1.44%
Total Sales Tax Rate: 5.44%
Bonus State: Hawaii
Hawaii has a state sales tax rate of 4% and a local tax rate of 0.5%, making the total 4.50%. While known for its beautiful beaches and tourism, Hawaii is also great for businesses in hospitality and renewable energy. The state is a leader in solar energy usage and offers many opportunities for sustainable business practices, appealing to eco-friendly enterprises.
2024 State Sales Tax Rate: 4%
Average Local Sales Tax Rate: 0.50%
Total Sales Tax Rate: 4.50%
Why Sales Tax Rates Matter
Sales tax rates make such a big deal because they can influence where a company decides to do business. For example, a high sales tax rate might discourage customers from buying products, which could reduce a business’s sales. On the other hand, a lower sales tax rate could attract more customers and help a business grow. For business owners, the amount of sales tax they need to collect can also affect their pricing strategy and how competitive they are in the market. Additionally, when a business is trying to save money, being in a state with a low sales tax rate can help lower overall costs. That is why understanding the sales tax rates in different states is so valuable for businesses. It’s one of the many factors that can help a business succeed.
What is a Sales Tax Bond?
A sales tax bond is like a promise to the government that a business will pay its sales taxes on time. Think of it as a security deposit. If the business doesn’t pay or reports its earnings wrong, the government can take money from this deposit to cover the missing taxes.
Is Sales Tax Capitalized?
Capitalizing sales tax isn’t the typical practice because sales tax is generally considered a part of the operating expense of a business. Here’s a quick breakdown:
When you buy something for your business, like supplies, you usually pay sales tax. Typically, you just count this tax as a regular business expense and write it off right away. However, if you buy something big, like a machine or a car, you treat it a bit differently. The sales tax you pay on such a purchase gets added to their total cost. Instead of writing it all off at once, you spread it out over several years, which is called depreciation. This way, the cost of the tax gets counted a little at a time as you use the item.
Wrapping Up
Choosing states with low sales tax can really help your business increase its profit margins. If you want to find the best state to set up your business, getting the right tax advice is super important. At Tax Goddess, we specialize in helping entrepreneurs and business owners identify the most effective, IRS-compliant strategies to save big on taxes. Book a FREE 30-minute consultation with our Growth Team, and let’s have a chat about finding the perfect tax-saving haven for your business.
