Tax Study

How Tax-Friendly Is Your State?

Analysis of income, state, sales and property taxes reveals the most tax-friendly states for residents.

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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.

Every state handles these taxes a little differently, and which state you live in has a significant impact on your wallet. But while citizens have long since considered the cost of taxes when determining if and where to move, the debate has only intensified over the past year with the rise of remote working and the idea that you're not necessarily tied to the same location as your employer.

But which states are the most tax-optimized? 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 E:

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 $11,000 a year in state and local taxes. In low-tax locales like Wyoming, Nevada and Alaska, the tab can be less than $5,000 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

MoneyGeek estimated the state taxes paid by a married couple making the median national income of $82,852, with one child, and who own their $349,400 home to assess each state's tax-friendliness.

State
Grade
Estimated Taxes
Tax as % of Income
Change in Pop. 2020

Wyoming

A

$3,279

4.0%

0.4%

Nevada

A

$3,879

4.7%

1.5%

Alaska

A

$4,507

5.4%

-0.3%

Florida

A

$4,632

5.6%

1.1%

Tennessee

A

$5,377

6.5%

0.8%

Washington

B

$5,414

6.5%

1.0%

North Dakota

B

$5,556

6.7%

0.2%

Arizona

B

$5,665

6.8%

1.8%

South Dakota

B

$5,938

7.2%

0.6%

Delaware

B

$6,074

7.3%

1.0%

Colorado

B

$6,210

7.5%

0.9%

Louisiana

B

$6,556

7.9%

-0.3%

District of Columbia

B

$6,626

8.0%

0.6%

California

B

$6,628

8.0%

-0.2%

Montana

B

$6,700

8.1%

1.0%

Alabama

B

$6,894

8.3%

0.3%

New Mexico

B

$6,921

8.4%

0.3%

Hawaii

B

$6,982

8.4%

-0.6%

South Carolina

B

$7,147

8.6%

1.2%

Idaho

B

$7,198

8.7%

2.1%

Indiana

B

$7,258

8.8%

0.4%

Missouri

C

$7,639

9.2%

0.2%

North Carolina

C

$7,658

9.2%

0.9%

Utah

C

$7,783

9.4%

1.5%

West Virginia

C

$7,855

9.5%

-0.6%

Mississippi

C

$8,025

9.7%

-0.4%

Texas

C

$8,027

9.7%

1.3%

Virginia

C

$8,083

9.8%

0.4%

Kentucky

C

$8,169

9.9%

0.1%

Oklahoma

C

$8,228

9.9%

0.5%

Arkansas

C

$8,625

10.4%

0.3%

Maryland

C

$8,758

10.6%

0.0%

Minnesota

C

$8,888

10.7%

0.3%

Georgia

C

$8,972

10.8%

0.8%

Ohio

C

$8,999

10.9%

0.0%

Oregon

C

$9,298

11.2%

0.6%

Maine

C

$9,411

11.4%

0.3%

Pennsylvania

C

$9,542

11.5%

-0.1%

Rhode Island

C

$9,617

11.6%

-0.1%

Massachusetts

D

$9,771

11.8%

0.0%

Kansas

D

$10,166

12.3%

0.0%

Michigan

D

$10,239

12.4%

-0.2%

Nebraska

D

$10,446

12.6%

0.3%

Vermont

D

$10,453

12.6%

-0.1%

Wisconsin

D

$10,976

13.2%

0.1%

Iowa

D

$11,398

13.8%

0.1%

New York

D

$11,495

13.9%

-0.6%

New Hampshire

D

$11,694

14.1%

0.4%

New Jersey

E

$11,872

14.3%

-0.1%

Connecticut

E

$12,545

15.1%

-0.3%

Illinois

E

$13,894

16.8%

-0.6%

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
  • Oregon
  • Montana
  • Delaware

States With No Income Tax

Seven states do not collect tax on personal income, and Tennessee is poised to join the list:

  • Alaska
  • Wyoming
  • South Dakota
  • Florida
  • Texas
  • Nevada
  • Washington

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:

  • Hawaii
  • Alabama
  • Colorado
  • Louisiana
  • Delaware

Analysis Shows Population Growth in Lower Tax States

For many, the pandemic has altered their perceptions about where they want to live and where they can live. Millions of city-weary residents aching for more space have moved since the start of the pandemic.

Analysis of state tax burden rates and the change in population from 2019 to 2020 as estimated by the U.S. Census Bureau shows a negative correlation. The lower the state and local tax burden, the higher the population growth in 2020.

Four of the five states with an A grade in tax friendliness had population growth at or above the national average. The fifth state in the group with negative population growth was Alaska.

Of the states with an E grade, all three had population declines in 2020. Of the 9 states with a D grade, only one, New Hampshire, had population growth higher than the national average.

The included expert insights section on this page has advice on how to manage moving and taxes.

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 $13,894 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 $3,279.
  • Mississippi is in the middle of the pack. A typical family would pay $8,025 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 taking advantage of education credits and deductions. But if you’re pondering a relocation for professional or personal reasons, taking tax implications into consideration could help you choose your next move.

Expert Insights: Moving and Taxes

Making the move to a different state is a big step, and from a tax perspective, it can get complicated. MoneyGeek interviewed several experts to elaborate on the unique tax issues that moving presents and what you may need to take into account if you're thinking about making a move across state lines. The views expressed are the opinions and insights of the individual contributors.

  1. What tax implications should someone consider if they are moving from one state to another? What records would they need to show, if any?
  2. What factors determine where your true home is?
  3. How does working remotely affect one’s taxes? Similarly, what if you work in one place but choose to live in another because you can now work from home? What happens if you choose to work remotely out of another state for a period of time?
  4. How can someone looking to optimize their taxes do so by moving states?
Francine Lipman
Francine Lipman

Professor of Law at University of Nevada Las Vegas (UNLV)

Edward Zelinsky
Edward Zelinsky

Morris and Annie Trachman Professor of Law

Sharon Ackerman
Sharon Ackerman

Director, State and Local Taxation at Anchin, Block & Anchin

John Bonk
John Bonk

Partner and State & Local Tax Leader, Marcum Accountants and Advisors

Jared Walczak
Jared Walczak

Vice President of State Projects, Tax Foundation

Henry Grzes
Henry Grzes

Henry Grzes, Lead Manager for Tax Practice & Ethics American Institute of CPAs

Ani Hovanessian
Ani Hovanessian

Partner and Chair of the New York Tax and Wealth Planning Group at Venable LLP

Daniel Lee
Daniel Lee

Senior Wealth Manager at Plancorp

Nancy Anderson
Nancy Anderson

National Director of Wealth Planning & Trust Services, Calamos Wealth Management

Jeff Zhou
Jeff Zhou

CEO and Founder of Fig Tech

Methodology

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 $82,852, and a home worth $349,400 (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 E based on the size of the tax payment.

About the Author


expert-profile

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.


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