States with Lowest Taxes

Tax burden varies substantially by state. The states with the highest taxes charge about triple the amount of taxes as the states with the lowest taxes.

Not unsurprisingly, people who have some latitude to choose where they live often consider state taxes as one of the factors impacting their decision. Some states have no personal income tax. Others have no sales tax.

Of course, which taxes matter to you will vary due to your personal situation and even your personality. Some people don’t mind paying their fair share of taxes, but they hate filing personal income taxes. Moving to one of the seven states with no personal income tax means that you only have to file a federal return, thereby saving you filing fees and paperwork headaches every year.

But if your primary goal is to lower your tax burden, you will need to look deeper than that. You will need to think about the sources or sources of your income and look at the kinds of things states do tax.

Some states tax Social Security and others don’t. Since retirees are one of the more footloose groups, that’s something many readers will want to delve into more deeply.

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States with no state personal income tax

There are seven states with no personal income tax. You might immediately realize that some of these states have a reputation as a retirement destination.

  1. Alaska
  2. Florida
  3. Nevada
  4. South Dakota
  5. Texas
  6. Washington
  7. Wyoming

Florida is a well-known retirement destination because it not only lacks a state income tax, it also has terrific weather. On the other hand, Alaska has such harsh weather and high costs, it doesn’t have the same reputation.

See also: Moving to Florida

These states are also somewhat popular with military members to claim as their state of permanent residence. It’s easiest to do that if you happen to be stationed there for a bit. If you find yourself stationed in one of the above states, consider making it your permanent residence of record so you don’t have to file state taxes while moving around.

If you aren’t a retiree and you are still working for a living, you may also be interested in New Hampshire or Tennessee as a possible personal “tax heaven.” These two states do not tax wages, which is a boon for working class people who might otherwise self-identify as wage slaves.

See also: Should You Move to a State with No Income Tax

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States with the lowest property tax rates

When people speak of “property,” they often mean real property, also known as real estate. Property taxes include taxes on real property but also include taxes on other forms of property, such as cars, boats and airplanes.

Here are the ten states with the lowest overall average property burden:

  1. Louisiana (0.18 percent)
  2. Hawaii (0.26 percent)
  3. Alabama (0.33 percent)
  4. Delaware (0.43 percent)
  5. District of Columbia (0.46 percent)
  6. West Virginia (0.49 percent)
  7. South Carolina (0.50 percent)
  8. Arkansas (0.52 percent)
  9. Mississippi (0.52 percent)
  10. New Mexico (0.55 percent)

Of course, how much of a burden that will represent for you as an individual will depend in part on your lifestyle. If you are a car nut, like Jay Leno, you may want to look more closely at what kinds of property get taxed and how much the tax is on cars in specific. Or maybe you own your own private plane or three and perhaps tax burden for your plane will bite.

Always sit down and think about not only your sources of income but also your overall lifestyle. If total tax burden matters to you, you will want to dig down into the details for every state that you are considering for other reasons, such as cost of living, weather or proximity to relatives.

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States with no state sales tax

Sales tax can be imposed at the state, county or city level. For this reason, you can’t simply look at state sales tax to find the answer to the question “Which states have the lowest sales tax burden?”

But let’s start by listing the states with no state sales tax. As of 2019, that’s these five states:

  1. Alaska
  2. Delaware
  3. Montana
  4. New Hampshire
  5. Oregon

But only one of those states also makes the list of states with lowest average combined state and local sales taxes:

  1. Alaska (1.76 percent)
  2. Hawaii (4.44 percent)
  3. Wyoming (5.34 percent)
  4. Wisconsin (5.46 percent)
  5. Maine (5.5 percent)

You will notice that there is a trend here: Alaska keeps coming up as a state with no or low taxes. Alaska actually has the lowest overall tax burden of all fifty states.

If you were basing your decision for where to live solely on tax burden, Alaska would win hands down. But thanks to the extreme weather, lack of infrastructure (such as having no roads in many places) and high cost of living, it’s got the lowest population density of all fifty states.

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Other State Taxes to Keep in Mind

The above types of taxes is not a comprehensive list of all types of taxes found in the US. You may want to also examine some of the following categories:

Corporate income tax

If you are business person looking to start a new business, you may wish to locate in a state with no corporate income tax, such as South Dakota or Wyoming. States with corporate tax rates at or below five percent are:

  1. North Carolina (2.5 percent)
  2. North Dakota (4.31 percent)
  3. Colorado (4.63 percent)
  4. Arizona
  5. Kentucky
  6. Mississippi
  7. South Carolina
  8. Utah

Fuel tax and “sin” taxes

All states charge some amount of fuel tax for gasoline and diesel fuels. However, the amount varies tremendously, from a low of 14.66 cents per gallon in Alaska to a high of 61.2 cents per gallon in California. If you do a lot of driving locally, this could prove to be an unexpected burden. Sin taxes are taxes on things like cigarettes and alcohol.

Inheritance and estate taxes

If you expect to inherit handsomely at some point, this as a tax you need to look at. The states to avoid would be: Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania.

See also: Best States to Live in for 2020

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Conclusion

Of course, tax burden should not be the only factor you consider in deciding where to move, but it certainly can help you decide in cases that otherwise look too close to call between city A and city B. Keep in mind that taxes are used to pay for infrastructure, like schools and roads, so lower taxes can correlate to fewer amenities.

Always think about your overall lifestyle and dig into the details for any state you are considering. A state that is a tax heaven for one individual can be a tax hell for another due to differences in their personal circumstances.

See also: Top 12 Cities to Raise a Family in the United States of America