Sales tax differs in every state and then can differ even further in counties and cities as well. This tax percentage can be determined from anything like budget needs to special projects and more and there is an abundance of different sales tax rates throughout the nation.
You may not take notice when you are purchasing at a store but some items, like maybe buying a car, can have significant sales tax ramifications associated with them and there is much to consider. In fact, there are even some states that have no sales tax applied currently.
In this guide, we will cover sales tax and specifically discuss Montana sales tax as a whole.
What Exactly is Sales Tax?
Sales tax is a form of tax that is applied to purchases, specifically retail purchases. This sales tax amount is established by the state and other local governments so you may hear terms like state sales tax but in your area, you might also hear city sales tax or possibly even county sales tax rates.
On a state level, the sales tax percentage is determined based on the budget for the state. This percentage that is applied to retail sales of any kind financially supports the state’s budget for roads, emergency services, schools, and similar entities.
This type of tax has nothing to do with the end of year tax time that we all relate to the IRS. That is a federal tax and it is wholly separate from the sales tax applied to purchases.
Sales Tax Calculation
If you are trying to determine how much an item may cost when sales tax is added, you will need to know the sales tax of the area in which you are purchasing. When it comes to purchasing large items like vehicles, you must consider the sales tax of where you are purchasing as well as the sales tax of where you will be registering the vehicle.
To keep it simple, to calculate sales tax, you can take a dollar amount and multiple it by the percentage, adding a one to the percentage to simply get a grand total. Here is an example.
$100 purchase at a 7.5% sales tax rate.
$100 x 1.075 = $107.50
This means that the total cost of a $100 purchase would be $107.50 when sales tax is added to the purchase. Remember that sales tax percentages can vary heavily and there are even some items that are taxed less or more and possibly items that are not taxed at all.
Montana Sales Tax Rates
In Montana, the state sales tax is currently 0.00%. Interestingly enough, the cities within Montana also do not have added sales tax rates which means that purchases made in Montana are typically charged no sales tax when purchased within the state of Montana.
Montana is 1 of 5 states within the United States that does not charge sales tax on purchases. The other states are Delaware, Alaska, New Hampshire, and Oregon. If you’re wondering how they can possibly budget for the state without sales tax, you should know that Montana in particular, relies primarily on income tax for the state to handle state operations expenses and budget needs.
Montana is considered one of the most fair states when it comes to tax distribution and the way that taxes are managed and utilized within the state. In addition to income taxes, Montana uses a selective sales tax method on items like gas or tobacco. They also require taxation for alcohol sales as well as oil and gas production.
How Can Montana Sales Tax Rates Benefit You?
Because of the sales tax rates in Montana, it has become a popular resource for making larger purchases. In fact, some have found loopholes in the system that allow them to establish a business in Montana and purchase things under the guise of the business and not pay sales tax because the business establishment is Montana-based.
If you are a Montana resident, you probably already understand that purchasing a new car or an RV in Montana is much simpler than purchasing in other states. You don’t have to worry about paying extra sales tax when you register in a different county than you purchased and the price is simply what the price is. It’s far easier to plan or budget.
Some residents who do not live in Montana have found ways to use the Montana sales tax rate to their benefit. In some instances, people are establishing LLCs in Montana even when they live in other states and it’s totally legal to do so.
This is one of those loopholes that Montana allows. There is no sales tax in the state of Montana and in addition, an entity of Montana can register a vehicle in the state of Montana. Because of this, individuals are establishing LLCs and using that as a means to purchase and register vehicles while living in another state.
Apart from the everyday advantages of no sales tax in Montana, this is becoming increasingly popular as a means to save dollars, and it’s working.
Disadvantages to Montana Sales Tax Rates
It sounds like a pretty awesome deal, right? While it certainly can be there are also a few downsides to consider.
For starters, if you go to Montana to save some money on sales tax, you may find yourself owing your home state some sales tax. This is not likely to happen with things like groceries and traveling, and traditional purchases.
The most common source of this disadvantage would be the purchase of a car when you live in another state. When you purchase a car in Montana, you will most likely have to pay sales tax when you register that vehicle in your home state and county to make up the difference. The only way to avoid this would be with the establishment of a Montana business entity and using the business entity to purchase said vehicle.
The other downside might be the time and expense of establishing a Montana business entity and the upkeep of said entity. Another potential downside might be fighting a legal battle if your state decides to fight with you about the situation.
Montana Sales Tax Conclusion
The benefit of not having sales tax for purchases is certainly a convenient consideration. We often don’t realize just how much that sales tax can add up. If you’re just doing some everyday shopping, don’t run over to Montana to get it done.
The biggest benefit lies in purchases such as a vehicle or RV like we mentioned in this guide. Keep in mind, this approach is not a solution for everyone and it may not always be effective in the way that you are thinking. At some point, you may still have to pay that sales tax.
Take into consideration the total situation and be sure to assess and understand how 0.00% sales tax works and how it may affect you as well.