The Real Cost of Living in America's Five Tax-Free States: What Shoppers Actually Pay

When you’re browsing for deals in most U.S. cities, that price tag on the shelf doesn’t tell the whole story. State and local sales taxes can silently add 5-10% to your final bill at checkout, catching many shoppers off guard. But what if you could escape this hidden cost entirely?

Five states in America have figured out a way to eliminate state sales tax altogether. However, here’s the catch: they’ve simply shifted the tax burden elsewhere. Understanding these five no-sales-tax states reveals an important lesson about government funding and personal finances.

Alaska: Tax Freedom With Geographic Trade-Offs

Alaska stands out as a tax haven for those willing to embrace frontier living. The state imposes neither sales tax nor state income tax—a rare combination that makes it exceptionally attractive to budget-conscious residents.

But before you start packing, consider this: Alaska’s local governments tell a different story. While Anchorage and Fairbanks enjoy the no-sales-tax advantage, the Borough of Juneau (home to the state capital) charges a 5% sales tax. Property taxes remain moderate with various exemptions, but the state’s geographic isolation and cost of living can offset any tax savings.

Does Delaware Have Sales Tax? No—But There’s a Catch

Delaware proudly advertises zero sales tax, both at the state and local level, making it a haven for business and shoppers alike. The state is famous for business-friendly corporation laws and equally attractive tax policies for residents.

Yet calling Delaware a tax paradise would be misleading. The state imposes gross receipts taxes on certain businesses and excise taxes on goods like gasoline and alcohol. Residents compensate through one of the nation’s higher income tax rates. So while Delaware shoppers enjoy sales-tax-free purchases, they face steeper income taxes—a significant trade-off for wage earners.

Montana: Sales Tax Freedom, But Not From Everything

Montana residents benefit from a rare privilege: no state sales tax and minimal local sales taxes across most counties and cities. For vacationers, this means budget-friendly dining and shopping.

However, travelers should note that resort areas impose local taxes on restaurants and hotels. Year-round residents face another reality: Montana levies steep income taxes and property taxes that are less competitive than neighboring states. The tax savings from avoiding sales tax often evaporate when residents file their annual income tax returns.

New Hampshire: “Live Free or Die” Applies to Sales Tax

New Hampshire’s famous motto rings true when it comes to sales tax policy. The state charges neither state nor local sales taxes, and residents also avoid state income tax—an exceptionally rare combination.

This freedom comes with strings attached. New Hampshire imposes luxury taxes, including surcharges on restaurant meals and prepared foods. Homeowners face some of the nation’s highest property tax bills. Investment income faces additional taxation as well. The state’s philosophy seems to be: avoid taxing necessities, but compensate through luxury and property taxation.

Oregon: No Sales Tax Sandwiched Between High-Tax Neighbors

Oregon’s zero-sales-tax policy stands in sharp contrast to California’s position as one of America’s highest-sales-tax states. Yet Oregon residents don’t escape taxation—they simply pay it differently.

The state applies excise taxes on tobacco, alcohol, and prepared foods. Oregon’s income tax ranks among the nation’s highest, offsetting any sales-tax savings for working residents. Property taxes sit at a moderate level, but combined with income tax obligations, Oregon’s overall tax burden rivals states with sales taxes.

The Bigger Picture: Sales Tax Is Just One Part of Your Total Tax Bill

The absence of sales tax might seem like a financial win, but examining the complete tax structure tells a different story. States without sales taxes consistently compensate through higher income taxes, steeper property taxes, or excise taxes on specific goods.

The reality is that state and local taxes fund essential services—schools, libraries, infrastructure, and public safety. Choosing where to live based solely on the absence of sales tax ignores the full financial picture.

When evaluating relocation or comparing states, analyze your complete tax obligations. A state without sales tax might cost you more overall if you’re a homeowner or high earner. Conversely, another state’s sales tax might be offset by lower income or property taxes for your specific situation.

The five states profiled here offer genuine tax advantages for certain residents—but only when you examine the entire tax burden, not just one component.