States With No Income Tax
I’ve talked a lot in the past about federal income tax rates, but I haven’t talked much about state income tax rates. The main reason for this is that state income tax brackets are all over the board. That being said, I thought it might be interesting to take a look at the states at the very bottom (or top, depending on how you look at it) of the heap.
States with no income tax
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee*
- Texas
- Washington
- Wyoming
*Note: New Hampshire and Tennessee don’t tax wage income, but they do interest and dividends. The applicable rates are 5% and 6%, respectively.
What about other taxes?
Of course, income tax isn’t the only thing to consider when figuring a state’s tax burden. You also have to factor in things like property taxes, sales taxes (both state and local), special assessments, and so on. For example, while Alaska and New Hampshire have no state sales tax, Tennessee has a 7% state sales tax on all purchases (including food, clothing, and medicine).
On the other end of the spectrum are states like Hawaii and Oregon, whose state income tax rates top out at 11% (albeit for only the highest income earners). For their part, Hawaii throws an another 4% state sales tax on top of their income tax, whereas Oregon has no state sales tax.
And just look at those poor Californians… Their top state income tax bracket it 10.3% and they get to pay an additional 8.25% in state sales tax. Yikes. I sure am glad that I don’t live in California!
What about you? What’s the tax situation in your state? If you live in a state without income taxes, what do you think? Are they making up for it with other forms of taxation? Or are you seeing less in the way of government provided services?
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Filed under: Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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March 21st, 2011 at 11:11 am
I’m one of the “lucky” ones in Washington. No income tax here, but 9.5% sales tax (10% at restaurants). Don’t know the percentage on property tax, but we pay about $4200/year on a relatively modest house.
I-1098 to create an income tax and reduce property taxes with part of the proceeds failed last election season, and I was very sad to see that.
March 21st, 2011 at 12:02 pm
You missed one. New Hampshire also doesn’t have an income tax on wages (or a sales tax for that matter) however it does have taxes on interest and dividends. NH does have taxes on a number of other things though.
March 21st, 2011 at 12:44 pm
Noadi: Ahh, you are correct. Odd that TaxFoundation.org lists them as having a 5% income tax rate in 2011, as it only applies to interest and dividends — very similar to the situation in TN. I’ll update the article… Thanks.
March 21st, 2011 at 2:05 pm
Alaska is starting to look mighty good!
Though I’ll consider my Florida sales tax the price of living in 80 degrees year-round.
March 21st, 2011 at 3:46 pm
Localities in TN add up to 2.25% onto the state rate for their own use, so sales tax you pay at the store when you buy something is actually 9.25. I don’t know if this is really a mistake in the numbers youve got though–since I dont know how sales tax works elsewhere, so everyone may read TN’s rate as 7% plus the additional local taxes.
March 21st, 2011 at 4:45 pm
I have a buddy who moved to TN specifically for their low tax rates. No income tax, very low property taxes, doing the big purchases online (to avoid sales taxes).
I’m in TX, and though we have no income taxes, I think our property taxes make up for it (3-4% of the market value per year), plus the 8.25% sales taxes (6.25% state, plus 2% local) — though it is still cheaper here than in most places.
California income taxes are pretty high, but at the same time their property taxes are capped at only 1%. That is why California had a real-estate bubble, and TX didn’t.
March 22nd, 2011 at 7:38 am
I’m in Alabama. We have income tax and sales tax of about 9-10% in most localities.
March 22nd, 2011 at 8:24 am
Rebecca: Yes, I’m aware of the potential for there to be additional local sales taxes. That’s why I said “sales taxes (both state and local).” Unfortunately, the system is just too complex and varied to list all the details b/c it’s different in every state, and some locales apply some or all of the extra amount whereas others don’t.
For example, TN has the option of an extra 2.25%, and I know that places like Nashville do add it, but I’m not sure about elsewhere in the state. Even in Alaska, where there is no state sales tax (0%), local communities have the option of adding up to 7% (!) in local sales taxes.
March 22nd, 2011 at 9:13 am
I moved from TX to MO last year, and can clearly state the cost of living in every area (except real estate property taxes – I have not owned a home in either location) is lower in TX than MO.
Specifically, the logic “sales tax is higher in states without an income tax” is not true. In TX, my sales tax was 8.25%, while in my new area (which contains dozens of municipalities), the lowest sales tax I have seen is 7.4% while the most common I’ve seen is 9.25%.
In addition, my new city has a personal property tax, e.g. yearly taxes on the value of your automobiles. This is all on top of the higher grocery and auto fuel costs.
Does all of this higher cost lead to better government services? No. The winter road cleaning (or lack of it) this past year has been a true testament to that.
March 22nd, 2011 at 10:54 am
Retirement living dot com has a breakdown of all taxes by states, not just income and sales taxes. It is pretty usefull in planning.
March 22nd, 2011 at 11:28 am
Tyler) pretty accurate, however I did notice that automobile insurance (and homeowners insurance) are much higher in TX than in NC (from where I moved years back).
In the end, TX has a fairly low overall cost of living — but you can see where costs have been cut after you live here for a while: traffic sucks with no traffic planning and ridiculous stop-light system (2 of the top 5 worst cities are in Texas), education is not as high quality as other places (but we have over 1000 school districts and administrative bloat), #3 with people in prison/jail (per capita), 24% of the population drive around without car-insurance (there is no enforcement), no building codes for homes/structures in rural areas (each city has their own building codes, no state-wide licenses or codes), etc, etc.
Basically, TX is exactly how one would envision North Mexico to be. Sure you pay less taxes, but you get what you pay for.
March 22nd, 2011 at 12:19 pm
Just checked MD (where we used to live) versus VA (where we just moved to). Looks like we’ll save about $3000 on our state taxes this year, but we’ll have to pay about $700 a year in personal property tax, county stickers, and vehicle inspections. Sales tax is slightly lower; real estate taxes are about 0.6% higher but we’re renting now so that doesn’t affect us yet. Positive net effect in terms of dollars, but we’ll see how the services stack up.
March 22nd, 2011 at 10:07 pm
My parents left Toronto, to the LA area. I was born and raised here, so this is my home. Home is where the heart is, and I do not commute.
March 23rd, 2011 at 2:31 pm
As a follow-up to my previous comment, it turns out our car insurance will be dropping by $700/year – which basically offsets the additional car fees. I just increased my 401K contribution by 3% without reducing my take-home pay, due to the lower level of state tax withholding. Woohoo!
March 23rd, 2011 at 4:47 pm
SD doesn’t have an income tax but it’s Sales Tax is on virtually everything including food and services. Plus the State has very few services and a lot of poverty. Not a good trade off in my opinion (yes, I have lived there).
April 6th, 2011 at 12:09 am
Grew up in Montana. Income tax but no sales tax. MT should have a sales tax because of all the tourists that spend money every summer trekking through a geographically large state. Everyone there scared to death of a sales tax. Now live in WA. High sales tax but no income tax. Everyone here scared to death of an income tax. Both states would probably be better off with a little of each.
September 26th, 2011 at 8:00 pm
It is a good point that all tourists would contribute to road care, park maintenance etc, if there was a small sales tax. Very difficult to tax only tourists… I live in CA and our sales- state and country and local all get added in there- is ridiculous. FYI..Many states do not tax retired teachers’ pensions. Assuming they are all senior citizens, is there enough money coming in to pay needed senior services?
November 12th, 2012 at 10:50 am
I don’t get why renter’s think they don’t pay property tax. Your rent is covering the tax for the property owner.