Which States Have the Lowest Taxes?

Ready to move somewhere more affordable? In addition to housing, food and healthcare costs, it’s important to factor in state taxes when assessing a place’s overall cost of living. While easy to overlook, taxes can be a significant expense. The three most common types of taxes that many (if not most) states impose on residents are personal income tax, sales tax and real property tax. Money derived from these taxes fund important services, such as public schools and infrastructure development. While necessary, these expenses can quickly add up come tax season.

Fortunately for anyone hoping to save money, not every state government imposes high taxes. In fact, several states do not impose certain taxes at all on residents. Those living in tax-expensive states, on the other hand, may have a harder time saving money. In fact, as WalletHub points out, taxpayers who live in states with high taxes pay “three times more than those in the cheapest states.”

If you’re looking to save money without having to lift a finger, consider moving to one of the U.S. states with the lowest taxes. For a look at which states impose low to no taxes on residents, take a look at our overview below.

States with the lowest state taxes in each category

States with no state personal income tax

What is personal income tax? The majority of U.S. states impose a personal income tax on residents. These taxes are taken out of a resident’s salary, wages and other sources of income. For high income households, living in a state where personal income isn’t taxed can be a major advantage. Just be aware that states with low income taxes typically make up for it by raising taxes elsewhere, such as by having high property or sales taxes. Here are the 7 U.S. states with no state personal income tax.

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

In addition to these seven states, Tennessee and New Hampshire do not tax earned income. However, the states do tax income from interest and dividends – so not everyone is off the hook.

States with the lowest property tax rates

What is property tax? According to the U.S. Department of the Treasury, each of the 50 states “have different definitions of property that is to be taxed.” Many states allow local counties or towns to tax real property, which includes structures such as land, buildings, homes, etc. Some states also allow municipalities to tax personal property (think: cars, boats, airplanes, etc). Property taxes are a percentage of your home’s value that you pay each tax season. This percentage typically funds public schools, road construction, public transportation, pensions and other local services. While property tax rates vary by county, you can assess which states have the cheapest overall property taxes by looking at each state’s median property tax rate. Below, we’ve listed the 10 U.S. states with the cheapest median property tax rates, ranked from lowest to highest according to tax-rates.org .

  1. Louisiana: .18%
  2. Hawaii: .26%
  3. Alabama: .33%
  4. Delaware: .43%
  5. District of Columbia: .46%
  6. West Virginia: .49%
  7. South Carolina: .5%
  8. Arkansas: .52%
  9. Mississippi: .52%
  10. New Mexico: .55%

Property taxes in the Northeast and Midwest tend to be higher. The 10 U.S. states with the highest median property tax rates are North Dakota, Vermont, Michigan, Connecticut, Illinois, Wisconsin, Nebraska, Texas, New Hampshire and New Jersey. For more information on property taxes and for a complete list of all median property tax rates by state, read our guide to Breaking Down Property Tax Rates by State.

States with no state sales tax

What is a sales tax? The U.S. Department of the Treasury defines a sales tax as “a tax levied on the sale of goods and services.” The three different types of sales tax include the vendor tax, the consumer tax and the combination vendor-consumer tax. Only five U.S. states do not have a sales tax. These five states are:

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

Although Alaska doesn’t have a statewide sales tax, the state does allow localities to impose a local sales tax on residents. While most states do charge a statewide sales tax, not all of these tax rates are particularly high. According to data from The Tax Foundation, states with low state sales tax rates include Colorado (2.9%), Georgia (4%), Hawaii (4%), Louisiana (4.45%), Missouri (4.23%), Alabama (4%), Wyoming (4%), New York (4%), North Carolina (4.75%), Oklahoma (4.5%) and South Dakota (4.5%).

Of course, when considering sales tax, it’s important to keep in mind local sales tax rates as well. Combined with the state sales tax, these rates can quickly add up. According to data from The Tax Foundation, the five states with the highest average combined state and local sales tax rates are Tennessee and Arkansas (9.47%), Louisiana (9.45%), Washington (9.21%), and Alabama (9.16%). States with the lowest average combined rates are Alaska (1.76%), Hawaii (4.41%), Wyoming (5.32%), Wisconsin (5.44%), and Maine (5.50%).

Other State Taxes to Keep in Mind

In addition to personal income tax, sales tax, and property tax, there are other taxes that states often impose on residents including corporate income tax, fuel tax, inheritance and estate taxes.

  • Corporate income tax – Corporate income tax requires corporations to pay taxes just as individual taxpayers do. The U.S. Department of the Treasury points out that many states keep corporate income tax rates low in order to attract new businesses to the state. States that do not levy a corporate income tax or gross receipts tax (a corporate tax alternative) include Wyoming and South Dakota. States with the lowest corporate income tax rates include North Carolina at 2.5 percent, North Dakota at 4.31 percent and Colorado at 4.63 percent. Other states that maintain a corporate tax rate at or below 5 percent include Arizona, Kentucky, Mississippi, South Carolina and Utah.
  • Fuel tax – Every U.S. state taxes gasoline and diesel fuel purchased within the state. According to the U.S Department of the Treasury, these liquid fuel taxes are collected by the distributor, who then submits revenue from the taxes to the state government. States with the lowest fuel tax include Alaska at 14.66 cents per gallon, Missouri at 17.42 cents per gallon and Mississippi at 18.4 cents per gallon. States with the highest gas tax include California at 61.2 cents per gallon, Pennsylvania at 58.7 cents per gallon and Illinois at 54.98 cents per gallon.
  • Inheritance and estate taxes – Several states impose an inheritance tax on residents. This is a tax that is “imposed on the transfer of property after the owner’s death,” according to the U.S. Department of the Treasury. Whoever is the beneficiary of the property is the person who must pay the tax. An estate tax is imposed on the entire estate (and assets) of the individual. According to TurboTax, only Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania impose an inheritance tax on residents.

Ready to move to a tax-friendly state?

If you’re tired of paying high taxes, consider moving to one of these tax-friendly states listed above. For more information about cities within these tax-friendly states, check Moving.com’s City Profile Report feature. Our reports include city demographics, real estate information, quality of life factors and more. Simply enter the zip code or the state and city of your potential move to get a free report at the click of a button. For help finding and booking the best moving company, check Moving.com’s extensive network of reputable and reliable interstate movers. Best of luck and happy moving!