Tax Day 2020: These states don’t require you to file a tax return but there’s a catch

July 15 is when you need to file a federal tax return. The traditional April 15 deadline moved after the IRS pushed it back due to the coronavirus Those states with a state income tax followed suit meaning both were due July 15. If you need some more there, you can request an extension by completing the IRS form 4868.

There are seven states with no income tax:

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Washington
  • Wyoming

Along with that, Tennessee and New Hampshire don’t tax earned income. But since they tax investment income and dividends, you still might be required to file a return.

The rest of us — whether single filers or joint filers — have to pay some level of state income tax, whether it’s a flat rate or based on your taxable income.

But even though some states don’t have a state income tax, they’re not completely tax-friendly, and there are other ways they can get a little more money out of you. For instance, you might live in a state that doesn’t have a state income tax but does have a high sales tax or property tax rate.

Sales tax

Sales tax is a tax the government puts on the sale of goods and services. It’s enforced at the state, city and local municipality levels.

Sales tax rate varies by state and then again at the local level. There are 45 states and the District of Columbia that collect state sales tax. In addition to state-level sales taxes, another 38 states also enforce local sales taxes. In some instances, local taxes can be more than the state tax.

The five states that don’t collect sales tax include:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

The states with the highest combined sales tax between state and local sales taxes are:

  • Tennessee — 9.47%
  • Louisiana — 9.45%
  • Arkansas — 9.43%
  • Washington — 9.17%
  • Alabama — 9.14%

While the state of Alaska doesn’t collect sales tax, local taxes average 1.43% in sales tax throughout the state. It’s the state with the lowest overall sales tax.

California has the highest state-enforced sales tax at 7.25%.

Keep in mind that there are some exemptions for sales tax. Many states exempt groceries from sales tax, while some tax it at a lower rate compared with other goods.

Every year, many states offer a sales tax holiday. Some states like Alabama, Texas and Florida offer separate holidays: one for hurricane supplies and one for school supplies. Mississippi has one just for firearms and hunting supplies. For most states that offer a tax holiday, it’s usually geared toward school supplies for the upcoming school year…Read more>>