If you live in or very near Alaska, Delaware, Montana, New Hampshire or Oregon I am jealous of you. You have the luxury of not having to pay sales tax on anything you buy.
With everyday purchases it can often go unnoticed. Though with your big purchases its staring right back in front of you. Just recently my husband and I bought furniture to furnish a spare bedroom. We bought a bed frame, two nightstands and two pieces of artwork all of which came to $1033 and some change. The sales tax added more than $67 to our bill! I crinkle my nose when I think about paying any more than I have to for the actual cost of goods. Sales tax acts like a punishment for buying goods and stimulating the economy! It irks me even more when buying a new car. Sales tax could add thousands of dollars to the end purchase price on any new vehicle. That’s when you really notice how much one pays in taxes. But what can I do? Well, I am not one to sit back and simply accept my fate so I’ve looked into ways we can ALL avoid paying sales tax in the future.
An Easy Way to Save $472 a Month
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Here’s what I know. There are legal ways to avoid paying sales tax. You just have to know how and where to shop in order to avoid this pesky fee.
The easiest way is to buy wholesale. Items that are NOT produced specifically for resale are exempt from sales tax. The law considers these sales transactions “casual and isolated sales” in which case no sales tax is required to be collected. Instead they rely on a “use tax” which is based on the honor system. This is tax is rarely paid people except for with purchases where registration is required..
How do you buy items that fall into this category? Shop at garage sales, through the classifieds, flea markets, and Craigslist. In addition to being places where you can get great deals, they are also places where retailers aren’t required to charge consumers any sales tax. Retailers like these are perfect when purchasing home goods, sporting equipment, furniture, tools, etc. When you buy direct from individuals you can save yourself anywhere from 4% to 8.25% depending on what state you live in. The bigger the purchase, the more money you save!
It’s also possible to avoid paying sales tax on items you purchase online. A sizable number of online retailers don’t charge sales tax! And you reap the savings. I mentioned this point a month back in my letter to you about shopping smartly online. Web only retailers like Zappos.com and Amazon.com don’t charge sales tax except to customers living in one or two states. The law says retailers don’t have to collect sales tax in states where they don’t have a physical presence, such as stores, offices or distribution centers. It’s been this way since 1992 when the Supreme Court ruled that it would constitute an unfair burden on retailers to try to collect taxes in states in which they don’t have a physical presence.
Next time you’re thinking about purchasing an item from a traditional brick and mortar store check to see if you can get the item online from a web only retailer or from a retailer without facilities in your state. Although you’ll have to pay a shipping fee when you buy online, that fee is almost always less than the sales tax you would have to pay on the purchase.
It’s also important to keep abreast of tax free holidays. My home state of Florida does this every year and I know many other states do as well. The idea behind these tax free holidays is to give consumers a break when purchasing necessary items. These holidays are usually combined with back to school shopping in August but can also be done during the month of January. Florida does one every year at the beginning of hurricane season to encourage residents to stock up on items like flashlights, generators, batteries, etc. If your state offers tax free holidays like these pay attention to the dates because they typically only are offered once maybe twice a year. It’s easy to find out the dates in your area. Do a Google search for “sales tax holiday” plus the name of your state.
You get the biggest bang for your buck when you purchase high ticket items tax free. Yacht owners and car collectors have really provided the most insight into avoiding paying sales tax. Sales tax on items like these can run a consumer several thousand dollars. If you buy a $30,000 car you can expect to pay around $2,000 in sales tax. Ouch! Yacht owners and car collectors have been known to purchase their toys in one of the five states that don’t charge sales tax. The savings is significant enough to warrant an out of the way trip for these high priced items. If you’re purchasing something that is a lot less expensive than a car or boat making the trip to Alaska, Delaware, Montana, New Hampshire or Oregon when you don’t have to negates the savings opportunities. But keep these states in mind next time you’re vacationing around these areas.
If you live near any of these states the trips are more manageable and the extra effort makes financial sense. A tank of gas is cheaper than paying the sales tax on purchases over $1,000. Plus road trips can be an amazingly good time.
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The other work around car collectors have found in avoiding paying enormous sales tax bills is to get licensed as a car dealer. Car dealer purchases are exempt because their purchases are considered wholesale purchases and sales tax will be collected when the car is resold. The license is inexpensive and fairly simple to obtain. Every state has their own set of requirements though; contact your local Department of Motor Vehicles to find out about the rules in your area. Dealer status has its share of perks including special license plates and allowing you to write off everything from gas to mileage, but it’s not for everyone. It has its shortcomings, look into this option fully before deciding to obtain a dealer license.
It pays to know where to shop!
There is also a way to use sales tax to help you. When filing your federal income taxes you can use your sales taxes as a deduction. This works best for states with no state income tax since you are allowed to either deduct state income tax or sales tax. So if you live in an income tax free state keep those receipts.
Keeping Money In Your Pocket,