The Rich Miser

How to Shop Tax-Free When You Travel

I was on vacation recently in Oregon, enjoying the great outdoors. For our first meal, my wife and I went to a restaurant, and I noticed an oddity when I got the bill: no tax charged. For an instant, I thought I was at a scofflaw establishment, but then it hit me: I was in one of those rare states that do not have a sales tax.

Fast forward a few days. We had planned to spend our last day in the Beaver State hiking. However, after about 3 hours of powering through its Pacific Northwest mountains, we were beat, and decided to hike no more. Having a few hours to kill, we resolved to shop at a nearby outlet mall, especially to save on that sales tax. I don’t like clothes shopping and only do so about 3 times per year, so we made this one of those occasions. We spent about four hunge, saving about $28 in tax.

This all got me thinking about when’s it worth it to do tax-free shopping on travels. I’m not talking about incidental purchases that you would have made anyways; I mean strategically going out of your way to shop. In that sense, I think there are two main considerations: where you are, and whether it’s worth the time spent.

Here, The Tax Man Cometh Not

In the US, five states have no sales tax: Oregon, Delaware, New Hampshire, Montana, and Alaska*. (That does not mean that a particular locality within these states has not levied a sales tax, but, in general, it’s unlikely you’ll be charged tax).

Outside the 50 states, you can shop tax-free in many places, including the US Virgin Islands (USVI) and Hong Kong. However, if you live in the 50 states, tax-free shopping outside the 50 states is messy in that, even in the case of the USVI, you are required to report your purchases beyond certain thresholds and pay tax upon re-entry to the 50 states. The game is even more complicated in places like Hong Kong because you have to take into account currency conversion and make sure to use the right payment method.

So, keeping to the 50 states, how do you decide?

How Much Are You Spending?

First, consider the amount. Let’s assume you would pay 7% sales tax in your home state. If you’re going to save $7 per $100 spent, I would not sacrifice vacation time to buy a couple hundred dollars worth of stuff. I just don’t think saving $14 is worth it, plus you have to take into account whether you have space in your luggage for your new acquisitions. Saving $20 or $30 to have to pay an overweight-bag fee of $50 ain’t a good deal.

How About the Bling?

This is where it gets interesting. Say you’re a fan of watches and have always longed for that $30,000 Patek Phillipe or Audemars Piguet, and years ago promised yourself that you would buy it when you made your first million. Well, the check just cleared, and you’re about to spend 30 large on a watch.

If you buy it at home, you’ll pay $2,100 in tax. However, if you buy it in Delaware, you’ll pay zero. There, I’d say it’s definitely worth it.

If it’s real, you’ll want to buy it tax-free

Bottom Line

Don’t go out of your way to save a couple bucks on sales tax. However, if you’re in the market for some serious jewelry, by all means buy it in a tax-free state.

*Source: The Motley Fool

Live it up, spend less.
Get notified of new posts by e-mail.

2 thoughts on “How to Shop Tax-Free When You Travel

  1. Darren

    We live close enough to Oregon that we could actually go there for clothes and other items. However, having retired from the Army, I can go on any military installation and shop tax-free. Usually, merchandise is very reasonably priced. I still prefer to shop at Marshalls for clothes, however. The prices are unbelievable.

    I know people who have bought cars in Montana or Oregon. I just don’t know how they registered their vehicles without having to pay the sales tax…

    1. The Rich Miser Post author

      Hi Darren! I agree, the prices at Marshalls or Ross are incredible. I had never heard of the car-buying technique, though. It sounds like the savings could be huge if it works.

Leave a Reply

Your email address will not be published. Required fields are marked *