State and local governments maintain roads, run schools and pay police, and they need to fund public functions and state infrastructure. For most Americans, this additional tax burden comes from a combination of state income taxes, state and local sales taxes, and local property taxes.
In order to generate a ranking of the tax-friendliness of US states, MoneyGeek analyzed tax costs across all 50 states to measure those with the lowest tax burden, considering sales, income, and property taxes.
Our map below gives each state a grade for tax-friendliness from A to F:
State-by-state tax burdens vary widely, our analysis found, and in high-tax locales such as New York, New Jersey, Connecticut and Illinois, a typical family can pay more than $10,000 a year in state and local taxes. In low-tax locales like Wyoming, Washington and Alaska, the tab can be less than $4,000 a year.
Amid this jumble of tax schemes, Americans’ tax burden is all over the map, contributing to a discrepancy in the cost of living among different states. Texas, Florida and other states collect no individual income tax, while other states impose rates of 8%, 9% or more. On the sales tax front, Oregon and Delaware don’t collect a penny at the cash register. In other states, including Alabama, Arkansas, Louisiana and Washington, state and local sales taxes top 9%.
See How Your Annual Tax Bill Compares With Other States
The federal government had limited authority to collect taxes until the Sixteenth Amendment was ratified in 1913. States were left to their own devices to fund the cost of government. As a result, each of the 50 states and the District of Columbia has its own unique tax scheme. Some states rely heavily on income taxes, while others depend on sales taxes. Some states aim to keep taxes as low as possible, and others seek to maximize revenue.
States With No Sales Tax
- New Hampshire
States With No Income Tax
Seven states do not collect tax on personal income, and Tennessee is poised to join the list:
- South Dakota
States With the Lowest Effective Property Taxes
For homeowners, the annual property tax bill can be a hefty expense. When calculating your mortgage, accounting for taxes can help you keep your housing costs in check. The states with the lowest property tax burdens are:
Tax Considerations For Moving to a New State
The Tax Cut and Jobs Act of 2017 reduced the ability of taxpayers in high-tax states to deduct state and local taxes from their federal tax bills. That led to predictions of a mass migration of residents from high-tax states to low-tax states.
For most of us, it probably doesn’t make sense to move to another state to save a few thousand dollars a year. Dave Klasing, a tax attorney and CPA who lives in Irvine, California, dislikes his state’s high taxes. “California has a budget surplus, and they’re raising taxes, which makes no sense whatsoever,” he says. “We have the highest taxes in the nation.”
Despite Klasing’s annoyance over the Golden State’s tax situation, he has no plans to move to Nevada or Florida or another no- or low-tax state. “I’ve lived in California my entire life,” Klasing says. “I can’t imagine living anywhere else.”
If you’re considering a move for other reasons — a new job or a more attainable housing market — then it makes sense to factor taxes into your calculation. Maybe a salary offer that seems a bit low will prove more appealing after you analyze tax savings in the new state.
Keep in mind that tax collectors in high-tax states are keenly aware of the advantages of moving. If you own a business or boast high earnings, they’re likely to look closely at your move. Say you move to Nevada to work remotely for a California-based company. You’ll still owe California income taxes on the money, Klasing says.
One glimmer of good news is that the IRS doesn’t get involved in state audits. “The IRS doesn’t care where in the country you live, but you might face state enforcement,” Klasing says.
Key Facts About Taxes
For a typical middle-class family, the difference between living in the highest-tax state in our rankings — Illinois — and the lowest — Wyoming — is nearly $10,000 a year. A breakdown of the state-by-state tax picture reveals:
Illinois imposes the highest tax burden. A hypothetical middle-income family would pay $12,725 a year in state and local income, sales and property taxes.
Wyoming collects the least. The same family with the same financial picture would spend just $2,954.
Mississippi is in the middle of the pack. A typical family would pay $7,409 a year in state and local taxes.
You’re probably not going to pick up and move simply to avoid state and local taxes. There are Simpler ways to cut your tax bill, like saving for retirement, calculating business expenses and to If you’re pondering a relocation for professional or personal reasons, taking tax implications into consideration could help you choose your next move.
To calculate the least and most tax-friendly states, we researched income, sales and property tax rates by state. Using expenditure and income data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, we constructed a hypothetical family with one dependent, gross income of $78,635, and a home worth $299,400 (the median new home price at the time we conducted our research). We then estimated the state taxes this hypothetical family would pay in each state. We ranked the states based on the estimated total taxes and assigned letter grades from A to F based on the size of the tax payment.
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.
With more than 30 years of experience in data-driven journalism, Caren now specializes in spreadsheets as a growth, data and research analyst at MoneyGeek.