These States Have No Sales Tax

And they're the best states to shop in.

May 24, 2014 at 2:30PM

Smart shopping is smart saving -- and it will consistently earn you a better return than even the market can offer.

Let's say you're going to buy a new car listed at $30,000. If you can shop around and save 10% off the sticker price, that car purchase is worth more than earning 10% on a $30,000 investment, because your investments are taxed but your savings aren't. With capital-gains tax rates of anywhere from 15% to 23.4%, your after-tax earnings from the investment will be significantly less than the $3,000 you just saved by shopping for a better deal.

That's why, if you live in a state with a high sales tax, it can pay to cross the border when a neighboring state has a lower rate. If you're really lucky, you might live near a state that charges no sales tax at all. There are four of them in the U.S. -- five if you include Alaska, which does allow local sales taxes.

The return from smart shopping is greater if you can shop in a state with no sales tax. Data from the Tax Foundation, which uses a per-capita average of both state and local taxes for 2014, shows that besides the states with no sales tax, every other state on the U.S. mainland has an average combined state and local sales tax between 5.4% and 9.45%! With the U.S. average combined sales tax at 6.4%, shopping in a state with no sales tax really does add up the savings.

The following slideshow gives an overview of each of the states without sales tax and shows you how your state compares.

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Find Dan Dzombak on Twitter, @DanDzombak, or on his Facebook page, DanDzombak. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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