Which States Have the Lowest Sales Tax? A 2025 Guide for Business Owners

Sales tax is one of those business topics that can look simple at first glance and become surprisingly complex the moment you start comparing states. A headline rate rarely tells the full story. Local taxes, special district taxes, economic nexus rules, and industry-specific exemptions all affect what a company actually pays and collects.

If you are forming a new business or expanding into new markets, it helps to understand where sales tax is lowest and why that matters. In some states, the statewide rate is zero. In others, the state rate is low, but local taxes push the combined burden much higher. And for ecommerce sellers, the customer’s location often matters more than the state where the company was formed.

This guide breaks down the states with the lowest sales tax in 2025, explains how sales tax works, and shows how founders can use this information when choosing where to form and operate a business.

How Sales Tax Works

Sales tax is a consumption tax charged on taxable goods and, in some states, certain services. In most cases, the seller collects the tax at the point of sale and remits it to the proper tax authority.

For business owners, three concepts matter most:

• State rate: The base sales tax set by the state.
• Local rate: Any city, county, or special district tax added on top of the state rate.
• Nexus: The connection that creates a tax obligation in a state, often based on physical presence or sales volume.

A business can have a low state tax rate and still face a meaningful total burden once local taxes are included. That is why founders should look at both the state rate and the combined rate before making location decisions.

The States With No Statewide Sales Tax

As of 2025, five states do not impose a statewide sales tax:

• Alaska
• Delaware
• Montana
• New Hampshire
• Oregon

That does not always mean there are no tax obligations at all. Local taxes, lodging taxes, meals taxes, and other business taxes can still apply depending on the state and the activity involved.

Alaska

Alaska has no statewide sales tax, but many local governments can impose their own sales taxes. As a result, the total burden varies by city or borough.

For businesses, this makes Alaska a state where the answer is not just “no sales tax.” You still need to check the local jurisdiction where you operate or sell.

Delaware

Delaware has no state or local sales tax, which is one reason it is often mentioned in business formation discussions. That said, a business should still evaluate Delaware’s broader tax and compliance environment rather than focusing on sales tax alone.

Montana

Montana does not have a statewide sales tax. Some local option taxes can apply in certain areas, especially tourist-focused communities. Businesses in those locations should confirm whether special local taxes affect their products or services.

New Hampshire

New Hampshire has no general statewide sales tax. Businesses still need to consider other tax obligations, but sales tax is not part of the normal retail pricing calculation for most goods.

Oregon

Oregon also has no statewide sales tax. For many businesses, that simplifies pricing and checkout experiences, especially for in-state retail sales. As with any state, however, other state taxes and compliance requirements may still apply.

States With the Lowest Non-Zero Sales Tax Rates

If you are looking beyond the no-sales-tax states, the lowest statewide sales tax rate in 2025 is Colorado at 2.9%.

Several other states are at 4% statewide:

• Alabama
• Georgia
• Hawaii
• New York
• Wyoming

Other low statewide rates include North Carolina at 4.75% and Oklahoma at 4.5%.

For a business owner, those rates may look favorable compared with higher-sales-tax states, but the combined burden can still rise once local taxes are added. A state with a modest base rate can become less attractive if the average local tax is high.

Lowest Average Combined Sales Tax Rates

A better comparison for many founders is the average combined state and local rate. In 2025, the lowest average combined rates are concentrated in a small group of states.

The states with the lowest average combined sales tax rates include:

• Delaware: 0.00%
• New Hampshire: 0.00%
• Oregon: 0.00%
• Alaska: about 1.82%
• Hawaii: about 4.50%
• Wyoming: about 5.44%

These figures matter because they reflect the tax customers are more likely to see in day-to-day transactions. If your business sells physical products, the checkout experience can change significantly from one state to another.

Why Low Sales Tax Does Not Tell the Whole Story

Choosing a state based only on sales tax can lead to a shallow decision. Business owners should also consider:

• Income tax: A state with no sales tax may still have a higher income tax burden.
• Franchise tax or gross receipts tax: Some states replace sales tax revenue with other business taxes.
• Annual report fees: Formation and ongoing maintenance costs can vary.
• Registered agent and compliance requirements: These affect the real cost of staying in good standing.
• Marketplace rules and nexus thresholds: Selling online often creates tax obligations in states where you have customers, not just where you formed the company.

In other words, a low-sales-tax state is not automatically the best business state. It is one factor in a larger decision.

What Ecommerce Founders Should Know

Sales tax gets more complicated when you sell online.

After a business crosses a state’s economic nexus threshold, it may need to register, collect, and remit sales tax there even without a physical office or warehouse. That means a company formed in a low-tax state can still owe sales tax in many other states if it sells enough there.

For ecommerce businesses, the practical questions are often:

• Where are my customers located?
• Do I have nexus in those states?
• Which products are taxable?
• Am I collecting the right rate based on destination rules?

This is why business formation and sales tax compliance should be considered together, not separately.

How Founders Can Use This Information When Choosing a State

If you are launching a company, sales tax should be part of your state-by-state comparison, but not the only factor. A smart evaluation includes:

1. The type of business you are forming.
2. Where you will actually operate.
3. Whether you sell online, in person, or both.
4. The tax mix in each state, including income and franchise taxes.
5. The ongoing compliance burden after formation.

For example, a founder may choose one state for formation, another for operations, and still owe tax in several others because of nexus. That is normal. What matters is building a structure that is clean, compliant, and sustainable from day one.

Where Zenind Fits In

If you are forming an LLC or corporation, Zenind can help you get the entity set up efficiently and keep the formation side organized. That gives founders a cleaner starting point while they evaluate tax obligations, business locations, and long-term compliance needs.

When you are comparing states, it helps to separate two questions:

• Where should I form the business?
• Where will I owe taxes and file returns?

Those are related, but they are not the same question.

FAQ

Which state has the lowest sales tax in 2025?

Delaware, New Hampshire, and Oregon have no statewide or local sales tax, while Alaska also has no statewide tax but allows local sales taxes. If you are comparing statewide rates only, Colorado has the lowest non-zero rate at 2.9%.

Is a no-sales-tax state always the best choice?

No. Other taxes, fees, and compliance rules can offset the benefit. You should compare the full tax and operating environment, not just the sales tax rate.

Does forming a company in a low-sales-tax state eliminate sales tax?

No. Sales tax obligations usually depend on where you do business and where your customers are located. Economic nexus can create tax duties in multiple states.

Should online sellers care about local sales tax?

Yes. Local tax rates can materially change the amount you must collect and remit, especially if you sell into multiple jurisdictions.

Final Takeaway

The states with the lowest sales tax are not always the states that give businesses the lowest overall tax burden. Still, sales tax is an important factor for founders, especially those building ecommerce brands or expanding across state lines.

If you are evaluating where to form your business, start with the sales tax landscape, then weigh the broader tax and compliance picture. That approach will give you a much clearer view of the true cost of operating in each state.