How to Avoid Paying Sales Tax

February 22, 2007

My niece asked a very good question the other day. “How come they charge you 54 cents for a candy bar when the sticker only says 50?” When I told her the extra money was for sales tax she wrinkled up her nose and said “I don’t like tax!’. Smart kid!

Sales Tax Sucks
Who does like to pay sales tax? It’s kind of like being kicked when you’re down. Inevitably there are things we don’t want to buy but have to for one reason or another. Pulling out your wallet to pay for something is bad enough. Then they slap the sales tax on top of the bill, ouch!

Avoid Paying Sales Tax in Your Neighborhood
The good news is there are several ways around paying sales tax. If you buy something that wasn’t purchased or made solely for resale, it is typically considered a “casual and isolated sale”, in which case no sales tax is charged by the seller.

Instead, most states have a use tax in place that relies on consumers to pay tax on the honor system. I wonder, is that the same honor system that politicians use when they waste your tax dollars? I digress. The point is that the use tax is rarely enforced mainly because most states do not have the resources to do so.

Whether you pay the use tax is up to you. Let me just ask. When was the last time your neighbor was fined or hauled away to jail for not paying their use tax? The best way to capitalize on this “honor system” is to buy used items directly from individuals.

  • Garage Sales
  • Newspaper Classifieds
  • Craigslist
  • Flea Markets

Avoid Paying Sales Tax Online
I explained in an earlier post about the Streamlined Sales Tax Project why we don’t currently pay sales tax on many things we buy online.

“In 1992, the Supreme Court ruled that forcing remote sellers to collect sales tax in states in which they do not have a physical presence would constitute an undue burden on retailers and commerce in general.

Since that ruling, states are prohibited from collecting remote sales tax until they have simplified their tax regimes enough to lift the burden on remote sellers why we don’t have to pay sales tax on many items that we pay online.”

Unfortunately, the states have figured out they’re missing out on huge amounts of tax revenue and are on a mission to change that. Take advantage of this consumer benefit while you can, it won’t be around forever.

Celebrate Sales Tax Holidays
Our state and others offer a sales tax holiday prior to the start of the school year. The intention is to give parents a break as they buy “back to school” items for their kids. Check out this link to the sales tax holiday in Texas. I don’t know if all states offer this, if yours does, pay attention to the dates because it’s typically only once a year.

If you know of any other (legal) ways to avoid paying sales tax, please let us know. Taxes cut into our hard earned salaries and it’s nice to reduce them any chance that we can.

Below is an update from a reader on another way to save on sales tax.

Avoid Paying Sales Tax in Your Neighboring state
Another way to avoid sales tax is to purchase an item from a local retailer in a neighboring state and have it shipped directly to you across state lines.

We did this for my wife’s wedding ring before we were married. I lived in Missouri and she lived in Kansas. We went to a local jeweler in Missouri and had it shipped to Kansas, no sales tax! However, this won’t work if the company has nexus (a location) in your resident state where it is shipped.

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Ben

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Ben
Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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Comments

16 Responses to How to Avoid Paying Sales Tax

  • E. Gambrell

    As a NH resident I had forgotten how much sales tax added up. This trip I’ve saved in Washington, Virginia, South Carlina and New Jersey but not California. Today I spent over $80.00 in tax and can’t find any resources to go back to COSCO with to say “HEY GIVE IT BACK” anyone know why some states have tax exemptions for “no sales tax state visitors” and others don’t? I won’t see any benifit for that money in the time I’m here.

  • Ben

    Stephen, you’re right, you have to factor in shipping. In the example given, the reader was shipping a wedding ring so the shipping costs were low.

  • Stephen

    I understand the desire to avoid sales tax, but wouldn’t having an item shipped (either online or in the example of purchasing an item from a neighboring state) negate the cost of tax? Unless it’s a high dollar item, say some expensive jewelry, it seems like you’d be paying more money for the shipping instead of sales tax buying it locally. Also you can have the item in hand that day versus sometime in the future.

  • Minimum Wage

    Some people live just across the border from a state without a sales tax, or a lower sales tax. For example, many residents of Vancouver, Washington drive across the river to shop in Oregon which has no sales tax. (Tens of thousands of Washington residents commute to work in Oregon, so for many people this is no biggie.)

    You won’t want to do this for everyday shopping, but for big-ticket items and big shopping trips, you can save money.

  • Brian

    i know in michigan when going out drinking always ask for a seperate bill for food. once a food item is ordered the entire bill gets taxed

  • scott

    move to oregon? :)

  • Stephanie @ PoorerThanYou

    New York collects the tax money for internet purchases every year when we fill out our New York State tax returns. I had to pay $5 this year! =(

  • Lazy Man and Money

    Sliver is right about the states that don’t collect sales tax. However, I think you are still supposed to pay the tax to your home state, if you want to follow the rules of the law. I could be wrong of course ;-).

  • VG23

    “Avoid Paying Sales Tax in Your Neighboring state”

    that is also called tax fraud since its on you to pay the sales tax for an internet purchase. the purchase was not “tax free” as you make it seem.

  • Silver

    You can also make purchases when visiting a state that doesn’t collect sales tax. I know Oregon and New Hampshire are two such states, but there might be others as well.

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