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All Contents © 2019The Kiplinger Washington Editors
By Sandra Block, Senior Editor
David Muhlbaum, Senior Online Editor
| October 11, 2018
The economy is booming, with the unemployment rate at the lowest level in nearly 50 years. Wages have remained relatively stagnant, though, and for many workers, the only way to get a raise is by changing jobs, which sometimes means moving to another city or state.
But before you start packing, check out the cost of living in your prospective employer’s city. You’ll want to look at the cost of housing, of course, and don’t overlook the impact of state and local taxes on your bottom line. Our annual guide to state taxes shows that tax rates are literally all over the map – and the difference between living in a high-tax or a low-tax state can be thousands of dollars each year, depending on your tax situation.
Updated for 2018, here is our list of the 10 most tax-friendly states in the U.S. The top five states on our list have no state income tax at all. Take a look.
See last slide for our methodology.
National Park Service
State income tax: None
Average local sales tax: 1.43%
Gas taxes and fees: 15 cents per gallon
Go to full state profile
Alaska gives each legal resident who has lived in the state for a full year an annual “Permanent Fund Dividend.” But the dividend has been shrinking in recent years, reflecting lower oil prices and a drop in production. This year, each legal resident will receive $1,600, down from a peak of $2,072 in 2015.
Gas taxes in the Last Frontier are the lowest in the U.S., and Alaskans pay no state income taxes or state sales taxes. While municipalities – generally those without real estate taxes – impose local sales taxes as high as 7.5%, the average sales tax is 1.43%, according to the Tax Foundation. Anchorage, Alaska’s largest city, has no sales tax. The property tax on the state’s median home value of $257,100 is $3,048. That’s slightly above the average for the U.S.
Average local sales tax: 5.39%
Gas taxes and fees: 24 cents per gallon
How does the Equality State continue to rank near the top of our list? Generous revenues from taxes on mineral and energy extraction.
Wyoming has no income tax, and its gas tax is well below the national average of 31 cents per gallon.
The property tax on the state’s median home value of $199,900 is $1,223, the ninth-lowest in the U.S.
While some states with no income tax make up for lost revenue with higher-than-average sales taxes, Wyoming’s combined state and local sales tax rate of 5.39% is effectively the lowest in the U.S. Prescription drugs and most groceries are exempt from sales taxes. And at 2 cents per gallon, Wyoming has the lowest beer tax in the land.
Average local sales tax: 6.40%
Gas taxes and fees: 30 cents per gallon
You’ll need to bundle up in South Dakota’s winter, but because you don’t have to pay state income taxes here, maybe you can afford to fly south for a couple of weeks in January.
South Dakota’s combined state and local sales taxes are below average for the U.S. However, while prescription drugs are exempt from sales taxes, food, nonprescription drugs and many services are taxed in the Mount Rushmore State. You can expect to start paying sales taxes on more of your online purchases, too. South Dakota brought the case that led the Supreme Court to overturn previous court rulings that made it difficult for states to collect sales taxes for online purchases. It’s planning to start collecting sales taxes from many out-of-state online retailers on November 1.
Property taxes here are above average for the U.S. The property tax on South Dakota’s median home value of $146,700 is $1,943.
Average local sales tax: 6.80%
Gas taxes and fees: 41 cents per gallon
Florida has no income tax, and its property taxes are below the midpoint for the U.S. The property tax on Florida’s median home value of $166,800 is $1,702.
Average combined state and local sales taxes in the Sunshine State are about average for the U.S., although in some counties the combined rate is as high as 8%. Food and prescription and nonprescription drugs are exempt.
Vehicles are taxed at the state’s 6% sales tax rate, but a county sales tax (based on where the buyer lives) is due on the first $5,000 of the purchase price or on each lease payment.
Average local sales tax: 8.14%
Gas taxes and fees: 34 cents per gallon
The Silver State is another no-income-tax haven. Also, the property tax on Nevada’s median home value of $191,600 is $1,478, 16th-lowest in the U.S. Gas taxes are the same as the national average of 34 cents per gallon.
Nevada receives more than $1.4 billion in taxes and fees annually from the casino industry. Still, Nevada relies heavily on sales taxes to pay the bills. The average combined state and local sales tax rate is 8.14%. Food and prescription drugs are exempt from the state’s sales tax, but counties may tack on as much as 1.42%.
In addition to sales taxes, vehicle owners are charged an annual “government services tax” that’s based on the vehicle’s value and age. The tax on a two-year-old vehicle with an original sticker price of $20,000, for example, is $238.
Courtesy Aaronyoung777 via CC BY 4.0
State income tax: 1.10% (on taxable income of less than $38,700 for single filers or $64,650 for joint filers) — 2.90% (on taxable income of more than $424,950)
Average local sales tax: 6.83%
Gas taxes and fees: 23 cents per gallon
The Peace Garden State imposes only modest sales taxes that favor agriculture (new farm machinery is taxed at only 3%), and its income tax rates are relatively minuscule, even for high earners. Gas taxes are well below the national average. Food and prescription drugs are exempt from sales taxes. Alcoholic beverages are taxed at 7%.
The property tax on the state’s median home value of $164,000 is $1,729, just below the average rate for the U.S.
Lee Cannon via Flickr/Creative Commons
State income tax: 2.2% (on taxable income of $2,001 to $5,000) — 6.6% (on taxable income of more than $60,000)
Average local sales tax: None
Delaware’s income tax rate escalates quickly. Residents with taxable income of $60,000 or more (both single and joint filers) pay the top rate of 6.6%, and the capital city of Wilmington imposes its own wage tax of 1.25%.
There’s a reason Delaware’s Rehoboth Beach outlets are packed even when the sun is shining: The First State has no sales tax. And shoppers are inclined to gas up on their way home because Delaware’s gas taxes are well below average.
Property taxes as a percentage of home value are the fourth-lowest in the U.S. The property tax on the state’s median home value of $233,100 is $1,274, according to the Tax Foundation.
Little Delaware, sandwiched between high-tax states such as Maryland and New Jersey, pulls off this low-tax trick by being a very friendly place for businesses to incorporate, and then collecting fees and taxes from these absentee businesses, whose real operations are elsewhere.
State income tax: 2.59% (on taxable income of less than $10,346 for single filers or $20,690 for joint filers) — 4.54% (on taxable income of more than $155,159/single or $310,317/joint) Income levels are for the 2017 tax year.
Average local sales tax: 8.33%
Gas taxes and fees: 19 cents per gallon
Arizona’s top income tax rate of 4.54% doesn’t kick in until taxable income exceeds $155,159 for single filers or $310,317 for married couples filing jointly.
The property tax on the state’s median home value of $176,900 is $1,367, below average for the U.S. And at 19 cents per gallon, state gas taxes are well below the national average of 34 cents per gallon.
Like most states, the Grand Canyon State excludes prescription drugs and food for home consumption from state sales taxes. However, all 15 counties levy additional taxes, as do many municipalities, and some jurisdictions extend their taxes to groceries. The average combined state and local sales tax rate is 8.33%, the 11th-highest in the U.S., according to the Tax Foundation.
While the gas tax is low, car owners must pay an annual vehicle license tax. The tax is based on an assessed value of 60% of the manufacturer’s base retail price, reduced by 16.25% for each year since the vehicle was first registered in Arizona. The rate is $2.89 for new vehicles and $2.80 for used vehicles, for each $100 of assessed value. For example, for a new vehicle that costs $25,000, the assessed value in the first year would be $15,000 — and the corresponding license tax would be $420.
Finchlake2000 via Flickr/Creative Commons
State income tax: 3% (on more than $1,000 of taxable income) — 5% (on more than $10,000 of taxable income). Income tax rates are being gradually reduced. By 2022, the first $5,000 of taxable income will be exempt.
Average local sales tax: 7.07%
Mississippi is moving to ease its income tax bite on the lowest-earning residents. Starting in 2018, the first $1,000 of taxable income is exempt from the 3% rate. By 2022, that bracket will be completely gone, and the income tax will start at 4% of $5,000 of taxable income.
Gas is taxed at 19 cents per gallon, one of the lowest rates in the U.S. Vehicle sales are taxed at 5%, two percentage points below the general sales tax rate. Mississippi also charges an annual personal property tax based on vehicles’ age and value. Rates are set at the county level. (In Lafayette County, for example, you’d pay $285 on a vehicle valued at $20,000.)
The property tax on the Magnolia State’s median home value of $105,700 is $841, the 19th-lowest in the nation.
Mississippi’s state sales tax rate of 7% is the second-highest in the U.S. (only California, at 8.25%, is higher), and Mississippi is one of a minority of states that charges sales tax on groceries. But prescription drugs, residential utilities, motor fuel and newspapers are all exempt, and localities add very little on top of the state’s rate, if anything.
Loco Steve via Flickr/Creative Commons
State income tax: 2% (on taxable income of less than $12,500 for single filers or $25,000 for joint filers) — 6% (on taxable income of more than $50,000/single or $100,000/joint)
Average local sales tax: 9.45%
Gas taxes and fees: 20 cents per gallon
With the third-lowest property taxes in the U.S., the Pelican State is a great place to own a home. The property tax on the state’s median home value of $148,300 is $750.
Another plus: At 20 cents per gallon, Louisiana’s gas tax is well below the national average of 34 cents per gallon.
Louisiana’s top income tax rate of 6% kicks in at $50,000 of taxable income for a single filer. Louisiana allows residents to deduct their entire federal income tax liability, minus nonrefundable tax credits, from their state income taxes. However, as a result of the federal tax overhaul, most taxpayers are expected to see their federal taxes decline in 2018. That means Louisiana’s deduction won’t be worth as much, and state taxes here will go up. The state has a budget shortfall of more than $1 billion, so lawmakers are unlikely to approve measures that would reduce the tax hike.
Local parishes and jurisdictions can add their own levies to the state sales tax, boosting the average combined rate to 9.45%, the second-highest in the country. In some jurisdictions, sales taxes are as high as 12%.
To create our rankings, we evaluated data and state tax-policy details from a wide range of sources. These include:
We looked at each state’s tax agency, plus this helpful document from the Tax Foundation. Rates and brackets are for the 2018 tax year unless otherwise noted.
Median income tax paid and median home values come from the U.S. Census American Community Survey and are 2016 data.
We also cite the Tax Foundation’s figure for average sales tax, which is a population-weighted average of local sales taxes. In states that let municipalities add sales taxes, this gives an estimate of what most people in a given state actually pay, as those rates can vary widely.
The American Petroleum Institute prepares a quarterly update of state rates. We used October 2018 data. Values include both excise taxes, sales taxes (when applicable) and a variety of fees that states impose.
Each state’s tax agency.
The Tax Foundation
Each state’s tax agency, plus a lodging tax study published in 2015 by HVS Convention Sports and Entertainment Consulting.
Each state’s balance sheet gives an indication of what its tax future might look like. We drew on the study Ranking the States by Fiscal Condition by the Mercatus Center at George Mason University.