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Contemplating relocating after retiring? Don’t underestimate sales tax. Charged as a percentage of the purchase price every time you buy something, it makes everyday essentials more expensive and varies widely from place to place.
In some municipalities, you’ll pay nothing; in others, up to 10%. For retirees living on Social Security, pensions, and investment withdrawals, those extra costs can quickly add up — and turn a comfortable budget into a tight one.
States With No Statewide Sales Tax
According to the Tax Foundation, five states impose no statewide sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon.
However, that doesn’t mean no sales tax is charged in any of these places. Only Oregon and Delaware levy no state or local sales tax whatsoever on consumers.
The other three states carry the following caveats:
* Alaska allows local governments to levy their own taxes, with rates averaging 1.82% and climbing as high as 7.85%.
* Montana has no statewide or local sales tax, but certain designated resort communities, including Big Sky, West Yellowstone, Whitefish, and Red Lodge, charge a local resort tax of up to 3% on lodging, food, alcohol, and other tourist-oriented goods and services.
* New Hampshire exempts all retail purchases but applies an 8.5% tax on restaurant meals, room rentals, and motor vehicle rentals.
States That Don’t Tax Groceries
Of all sales taxes, the one that hits retirees hardest is often the one levied on groceries.
Fortunately, many states exempt groceries entirely. Others apply a reduced rate, and a few tax groceries at the full rate.
States that still tax groceries at their full rate include:
* Idaho: 6%
* South Dakota: 4.2% (reverts to 4.5% in July 2027)
A reduced rate, meanwhile, is levied in:
* Mississippi: 5%
* Tennessee: 4%
* Alabama: 2%
* Utah: 3% (1.75% state + 1.25% local)
* Missouri: 1.225%
The remaining states don’t tax groceries. However, local jurisdictions can still add their own grocery tax, so it’s worth checking the rate in your specific county or city.
North Carolina, for example, has no state grocery tax but a uniform 2% local sales tax on unprepared food items, while in Virginia, local governments have the option to charge a 1% tax on groceries.
A few states also have additional conditions worth knowing. In New Mexico, the exemption applies only at retailers certified as a “retail food store.” In South Carolina, it is limited to unprepared food eligible for purchase with USDA food stamps.
Other Everyday Essentials That Some States Exempt
Other common spending categories that can be exempt from state sales tax include:
Prescription drugs: Exempt everywhere except Illinois, which taxes both prescription and nonprescription medicines at a reduced rate of 1%. Taxes on prescriptions can also be imposed in Louisiana by local parishes.
Over-the-counter medications: Taxable in most states, though some, including Connecticut, Maryland, Minnesota, New Jersey, New York, Pennsylvania, Texas, Vermont, Virginia, and Washington D.C., exempt them entirely. In other states, it’s possible for a doctor’s prescription to convert an OTC product into a tax-exempt purchase.
Clothing: Several states that charge sales tax exempt most clothing, including Minnesota, New Jersey, Pennsylvania, and Vermont. Three further states apply price-based partial exemptions: Massachusetts exempts items under $175 per piece, New York under $110, and Rhode Island under $250.
Sales Tax Breaks Are Only One Part of Retirement Affordability
Sales tax exemptions can save retirees money, but they’re just one tool states use to raise revenue.
A state with no sales tax might offset that advantage with high property taxes or steep income taxes on retirement income. Alternatively, a state that exempts groceries might tax Social Security benefits, pension distributions, or IRA withdrawals at a rate that dwarfs any savings at the checkout.
If you’re considering a relocation for your retirement, it’s smart to weigh all relevant taxes before committing to a destination. Other expenses should be considered, too, including housing, healthcareand insurance premiums, and everyday living expenses, all of which can vary significantly from state to state and even city to city.
Original Source: Investopedia
