Are you considering a move and analyzing the cost of living in different states? To help you analyze the tax burden you’ll shoulder in a new state, MoneyGeek calculated how much a hypothetical family with a gross income of $78,635 and a home worth $299,400 would pay in income taxes, sales taxes and property taxes collected by state and local governments. Based on our research, these are the 10 U.S. states with the lowest tax bills.
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Total Tax Bill for the Average Family: $5,461 |
|---|---|
| Effective Income Tax Rate: 4.9% | |
| Effective Sales Tax Rate: 0.0% | |
| Effective Property Tax Rate: 0.6% |
Delaware’s property taxes are among the lowest in the nation. It’s one of the small handful of states where property tax collections amount to less than 1.8% of personal income, according to the Tax Foundation. It’s also the rare state that collects no sales tax. The state income tax is one area where Delaware isn’t a tax haven. The top tax rate of 6.6% applies to income above $60,000.
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Total Tax Bill for the Average Family: $5,330 |
|---|---|
| Effective Income Tax Rate: 1.8% | |
| Effective Sales Tax Rate: 8.4% | |
| Effective Property Tax Rate: 0.7% |
Arizona modestly trimmed its income tax rate, cutting it to 4.5% from 4.54%, according to the Tax Foundation. While that’s on the low end among states charging personal income taxes, Arizona’s sales taxes are a bit pricier. The statewide sales tax stands at 5.6%, while the average local rate is 2.79%. Arizona’s corporate income tax rate is one of the lowest in the country, but that tax isn’t included in our methodology.
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Total Tax Bill for the Average Family: $5,303 |
|---|---|
| Effective Income Tax Rate: 0% | |
| Effective Sales Tax Rate: 6.4% | |
| Effective Property Tax Rate: 1.3% |
South Dakota has long positioned itself as a tax haven. The state doesn’t collect taxes on personal or corporate income. And its sales taxes — a 4.5% statewide rate and an average local rate of 1.9% — are on the low end of the spectrum nationally. Property taxes are the one area where South Dakota doesn’t charge rock-bottom rates. If you’re looking to lower your tax bill, living in South Dakota may be a good place to start.
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Total Tax Bill for the Average Family: $5,014 |
|---|---|
| Effective Income Tax Rate: 1.0% | |
| Effective Sales Tax Rate: 9.5% | |
| Effective Property Tax Rate: 0.7% |
Tennessee has a unique income tax system. The state doesn’t tax personal wages and salaries, but it does charge an individual income tax on interest and dividends. However, that tax is being phased out in 2020 and 2021, and Tennessee will join Florida, Nevada and other states that don’t tax individual income. Meanwhile, Tennessee shifts the burden to sales taxes. Combine state and local rates, and Tennessee has the nation’s highest sales tax rate, according to the Tax Foundation.
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Total Tax Bill for the Average Family: $4,780 |
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| Effective Income Tax Rate: 0.0% | |
| Effective Sales Tax Rate: 8.3% | |
| Effective Property Tax Rate: 1.0% |
Nevada collects no personal income tax. That selling point has boosted the Silver State’s population growth in recent years as Californians seek relief from high taxes and steep housing costs. However, Nevada’s ranking is weighed down by a statewide sales tax of 6.85%, which the Tax Foundation calls one of the highest in the nation.
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Total Tax Bill for the Average Family: $4,422 |
|---|---|
| Effective Income Tax Rate: 0.0% | |
| Effective Sales Tax Rate: 7.1% | |
| Effective Property Tax Rate: 0.1% |
The Sunshine State levies no personal income tax, a feature that has long been a linchpin of Florida’s population growth. The sales tax, however, is on the high side at 6%. Property taxes in Florida are tricky. Permanent residents don’t pay taxes on $50,000 in a home’s value, and the Save Our Homes initiative limits annual increases in property taxes.
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Total Tax Bill for the Average Family: $4,241 |
|---|---|
| Effective Income Tax Rate: 0.9% | |
| Effective Sales Tax Rate: 6.9% | |
| Effective Property Tax Rate: 0.7% |
North Dakota imposes an income tax rate, but the top level of 2.9% is the lowest among states that collect this levy, according to the Tax Foundation. What’s more, that highest marginal rate kicks in only on income above $433,000. Most income in the state is taxed at 2.04% or 2.27%. The state sales tax, meanwhile, is 5%, placing North Dakota in the middle of the pack.
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Total Tax Bill for the Average Family: $3,934 |
|---|---|
| Effective Income Tax Rate: 0.0% | |
| Effective Sales Tax Rate: 1.8% | |
| Effective Property Tax Rate: 1.2% |
Alaska collects no personal income tax. The state also imposes no statewide sales tax, although local jurisdictions can tax purchases. Alaska funds the state government through other means, including a corporate income tax that the Tax Foundation calls “particularly burdensome.” Property taxes are the one area where Alaska doesn’t impose bargain-basement fees for public services.
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Total Tax Bill for the Average Family: $3,711 |
|---|---|
| Effective Income Tax Rate: 0.0% | |
| Effective Sales Tax Rate: 9.2% | |
| Effective Property Tax Rate: 0.6% |
Washington, home to tech behemoths Amazon and Microsoft, has no state income tax, but it does impose a steep levy on retail sales. Washington’s combined state and local sales tax rate of 9.21% is the fourth-highest in the U.S., according to the Tax Foundation. Property taxes fall in the middle of the road.
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Total Tax Bill for the Average Family: $2,954 |
|---|---|
| Effective Income Tax Rate: 0.0% | |
| Effective Sales Tax Rate: 5.3% | |
| Effective Property Tax Rate: 0.6% |
A veteran business journalist, Jeff Ostrowski writes about money for the Palm Beach Post in Florida. Ostrowski is proud to say he knows how to use a financial calculator to amortize a mortgage.
Sources
Institution on Taxation and Economic Policy. “Why States that Offer the Deduction for Federal Income Taxes Paid Get it Wrong.” Accessed Feb. 26, 2020.
Tax Foundation. “Local Income Taxes in 2019.” Accessed Feb. 26, 2020.
Tax Foundation. “State and Local Sales Tax Rates, 2020.” Accessed Feb. 26, 2020.
Tax Foundation. “State Individual Income Tax Rates and Brackets for 2019.” Accessed Feb. 26, 2020.
Tax Foundation. “Wireless Taxes and Fees Jump Sharply in 2019.” Accessed Feb. 26, 2020.
U.S. Bureau of Labor Statistics. “Consumer Expenditures – 2018.” Accessed Feb. 26, 2020.
U.S. Census Bureau. “Median and Average Sales Prices of New Homes Sold in United States.” Accessed February 20, 2020.