TurboTax / Tax Calculators & Tips / All Tax Guides / General Tax Tips / Video: What You Should Know About Shopping in Tax-Free States

Video: What You Should Know About Shopping in Tax-Free States

Updated for Tax Year 2015


If you live in a state that doesn't charge a sales tax, consider yourself lucky, since 45 of the 50 states do charge the tax on goods you purchase there. Watch this video to find out more about shopping in tax free states and how this may affect your taxes.

Hello, I'm Jill from TurboTax with some important information for taxpayers who shop in states that don't have a sales tax.

If you live in a state that doesn't charge a sales tax, consider yourself lucky, since 45 of the 50 states do charge the tax on goods you purchase there.

If you live in a state that charges sales tax but shop in one that doesn't, you may need to consider whether you have an obligation to pay a use tax in your home state.

A use tax is similar to a sales tax and generally works the same way in all states that impose it. Take this scenario, for example: suppose you live in a state that charges a 6-percent sales tax and you purchase items in a neighboring state that doesn't have a sales tax. Your home state may then require you to pay a use tax for bringing those tax-free items into the state, generally at the same rate it uses for sales tax, but it's always a good idea to double-check with your state's rules.

These sales and use taxes can also affect your federal tax return, but in a good way.

When you itemize deductions on your federal return, the IRS allows you to choose between a deduction for your state income tax payments and your sales tax payments, whichever provides the bigger deduction.

You may already be thinking about all the receipts you will need to save, but fortunately, you can estimate your deduction using the optional sales tax tables in the instructions to Schedule A. The tables base your estimated sales tax payments on your income, the number of exemptions you claim and the sales tax rate of the state you live in.

The nice thing about using these tables to calculate your deduction is that it doesn't matter whether you do a lot of shopping in one of the five tax-free states or not. Your deduction is always based on the sales tax rate that your home state charges.

But remember, there is no requirement that you use these tables to calculate your deduction. If you do save your receipts or make some large purchases, you can deduct the actual sales and use tax payments you make.

Not sure which form to use? When you file with TurboTax, you don't need to know a thing about tax forms. We'll ask you simple questions and determine the filing status and forms that will give you your biggest tax refund.

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or efile and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected 3/18/16. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal efile of up to 5 federal tax returns. Additional fees apply for efiling state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected 3/18/16. Prices subject to change without notice.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with efile and direct deposit; tax refund timeframes will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice service is available via phone for your toughest tax questions; fees may apply. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2014 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • Benefit Assist: After you file, TurboTax automatically shows you a full list of government benefits you may qualify for, like Food Stamps or reduced phone & utilities. Plus, we help you apply, saving you time and making it easier than ever to get more money! Estimate based on calculation of Benefit Assist users from tax year 2013 and published reports of average benefit and savings amounts from federal and state programs. Benefit Assist users who received one or more federal or state benefits received on average $576 (based on survey March-June 2015). Actual amounts and qualifications based on your individual situation; some individuals will not qualify. Feature may not be available for all customers.