Our comprehensive guide to taxes on retirement income, property and purchases, as well as special tax breaks for seniors, in every state. Go to Retiree Tax Map Arizona View State Compare List (0) selected | Compare up to 5 The Bottom Line Most Tax-Friendly One of Kiplinger's top ten most tax-friendly states for retirees, the Grand Canyon State is a major retirement destination, with plenty of sunshine and a low personal income tax rate that tops out at 4.54%. Social Security benefits are exempt, as is up to $2,500 of some retirement income. Although Arizona's statewide sales tax is 5.6%, when combined with local rates it can average about 8%. There is no inheritance tax or estate tax. State Sales Tax Arizona's state sales tax is 5.6%. Counties and cities can add to that, with the average combined levy about 8%. In some localities, particularly on Arizona’s Indian reservations, total rates are into the double digits. Arizona does not tax food for home consumption or drugs prescribed by a licensed physician or dentist. However, most cities in Arizona levy a tax on food for home consumption. Income Tax Range Low: 2.59% (on up to $20,000 of taxable income for married joint filers and up to $10,000 for all others)High: 4.54% (on more than $300,000 of taxable income for married joint filers and more than $150,000 for all others) Social Security Benefits are not taxed. Exemptions for Other Retirement Income Railroad Retirement benefits are exempt. Up to $2,500 total of military, civil-service, and Arizona state and local government pensions are exempt. Out-of-state government pensions are fully taxed.IRAsTaxable at ordinary income rates.401(k)s and Other Defined-Contribution Employer Retirement PlansTaxable at ordinary income rates.Private PensionsTaxable at ordinary income rates.Public PensionsRailroad Retirement benefits are exempt. Up to $2,500 total of military, civil-service, and Arizona state and local government pensions are exempt. Out-of-state government pensions are fully taxed. Property Taxes Median property tax on Arizona's median home value of $166,000 is $1,321, according to the Tax Foundation.Tax breaks for seniors: Single homeowners and renters 65 and older who earn $3,750 or less and married couples who earn $5,500 or less are eligible for a property tax credit.Homeowners who are at least 70 years old, have either resided in their primary residence for at least six years or have lived in the state for at least 10 years, and do not receive more than $10,000 of taxable income per year can defer their property taxes.Homeowners who are at least 65 years old, have resided in their primary residence for at least two years and fall below certain income limits (for 2014, one owner of a property must have total income of $34,608 or less, and multiple owners of a property must have income of $43,260 or less) can apply to the assessor by September 1 to have the valuation of their property frozen for three years. The freeze can be renewed every third year. Inheritance andEstate Taxes There is no inheritance tax or estate tax.