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All Contents © 2019The Kiplinger Washington Editors
By Sandra Block, Senior Editor
David Muhlbaum, Senior Online Editor
| October 11, 2018
The Tax Cuts and Jobs Act will reduce federal taxes for millions of taxpayers, with the average family saving more than $1,000 in 2018.
State taxes are another story.
Most states use federal definitions of income—either taxable income or adjusted gross income—as the starting point for determining how to tax their residents. And even though the federal tax overhaul lowered tax rates, increased the child tax credit and doubled the standard deduction, it expanded the amount of income that’s taxable by the feds, mainly by eliminating personal exemptions. At the state level, that could lead to taxing a larger percentage of residents’ income, without the offsetting lower rates and expanded tax credits.
To avoid an April 2019 surprise, several states enacted laws during the 2018 legislative session to preserve personal exemptions for state taxpayers. Others lowered their tax rates or increased other state deductions and credits. But lawmakers in several other states are still debating how to adjust their tax codes. That has made some high-tax states even less friendly for taxpayers.
Making matters worse: The tax overhaul capped the federal tax deduction for state and local taxes at $10,000. In states with high property taxes, the cap will effectively increase homeowners’ tax rates. Some states have sought workarounds that will allow residents to deduct a portion of their property taxes, but so far those efforts have been thwarted by the Treasury Department.
Updated for 2018, here is our list of the 10 least tax-friendly states in the U.S., where you’ll pay above-average taxes on income, property, gas and almost everything you buy.
Take a look. Have a Kleenex handy. And a calculator.
See last slide for a full explanation of our methodology.
State income tax: 5.35% (on taxable income less than $25,890/single, $37,850/joint) — 9.85% (on taxable income more than $160,020/single, $266,700/joint)
Average state and local sales tax: 7.43%
Gas taxes and fees: 29 cents per gallon
Go to full state profile
The North Star State’s top tax rate of 9.85% is one of the highest in the U.S. But what makes Minnesota really stand out—and not in a good way—is its income tax rate of 5.35% even for the state’s lowest earners.
And thanks to the federal tax overhaul, it could get worse. Minnesota uses federal taxable income as the starting point for calculating state taxes. An estimated 300,000 Minnesotans will pay higher state taxes due to the loss of personal and dependent exemptions on their federal tax returns. Minnesota lawmakers and Gov. Mark Dayton were unable to agree on a fix during the 2018 legislative session, which ended in May. For that reason, Minnesota moves to the top of our least-friendly list.
The median property tax on Minnesota's median home value of $191,500 is $2,234, slightly above the average for the U.S.
Food, clothing, and prescription and nonprescription drugs are exempt from the state sales tax of 6.9%. A few cities and counties add their own local sales tax, bringing the average combined state and local sales tax rate to 7.42%. The sales tax for vehicles is 6.5%, slightly lower than the overall state sales tax, and vehicles are not subject to local sales taxes. Gas taxes are below the national average of 34 cents per gallon.
Minnesota offers some property-tax relief for qualified homeowners. Homeowners whose property taxes are high relative to their incomes are eligible for a property tax refund.
Edmund Garman via Flickr/Creative Commons
State income tax: 2% (on taxable income less than $1,000) — 5.75% (on taxable income more than $250,000/single, $300,000/joint). Maryland's 23 counties and Baltimore City may levy additional income taxes ranging from 1.75% to 3.20% of taxable income; per the Tax Foundation, the average local levy is 2.9%.
Average state and local sales tax: 6%
Gas taxes and fees: 35 cents per gallon
Maryland lawmakers made several changes to the state’s tax code in 2018, including preserving personal exemptions, to prevent the federal tax overhaul from triggering a state tax hike for millions of Free State taxpayers. For that reason, it moves down to the number two spot on our list this year, but Maryland taxpayers will continue to shoulder a heavy tax burden.
Maryland is among a handful of states that allow localities to levy their own income taxes on top of state income taxes. A married couple with income of $155,000 a year would pay about $11,000 a year in Maryland income taxes.
State and local sales taxes are 6%; food, prescription drugs and nonprescription drugs are exempt. The gas tax is just above the national average of 34 cents per gallon.
The property tax on Maryland’s median home value of $290,400 is $3,191, slightly below the average for the U.S.
State income tax: 4.0% (on taxable income less than $8,500/single, $17,150/joint) — 8.82% (on taxable income more than $1,070,550/single, $2,155,350/joint). New York allows localities to impose their own income tax; the average levy is 1.94%, according to the Tax Foundation.
Average state and local sales tax: 8.49%
Gas taxes and fees: 46 cents per gallon (varies by county)
The Empire State has a hefty income tax bite, and its average sales tax rate is the 10th-highest in the country. Food and prescription and nonprescription drugs are exempt from taxes, as are greens fees, health club memberships, less-expensive clothing and footwear, and most arts and entertainment tickets. Gas taxes are considerably higher than the national average of 34 cents per gallon.
The property tax on the state's median home value of $286,300 is $4,738, tying Rhode Island for 10th-highest in the U.S. But in some high-cost parts of the state, such as Westchester County, homeowners pay more than $17,000 in property taxes, which means they’ll be pinched even more by the new $10,000 cap on the federal deduction for state and local taxes.
The state tax on cigarettes is $4.35 per pack, the second-highest in the U.S. New York City tacks on an additional $1.50 per pack.
Roman Boed via Flickr/Creative Commons
State income tax: 4.95% (flat)
Average state and local sales tax: 8.73%
Gas taxes and fees: 38 cents per gallon (varies by county)
Burdened by the largest state budget deficit in the U.S., Illinois ranks #50 in the annual ranking of states’ fiscal health by the Mercatus Center at George Mason University. Residents are paying the price: In 2017, state lawmakers increased the Prairie State’s flat tax to 4.95% from 3.75%.
And the bad news doesn’t stop there. Property taxes in Illinois are the second-highest in the nation. The property tax on the state’s median home value of $174,800 is $4,058. Residents in high-tax jurisdictions, such as Lake County, will see their effective rates increase due to the $10,000 cap on federal deductibility of state and local taxes.
Sales taxes are high, too. The combined average state and local sales tax is 8.73%, the seventh-highest rate in the U.S. In some municipalities, combined state and local sales taxes are as high as 10%. (Qualifying food and prescription and nonprescription drugs are taxed at 1%.)
National Park Service
State income tax: 5.8% (on taxable income less than $21,450/single, $42,900/joint) — 7.15% (on taxable income more than $50,750/single, $101,550/joint)
Average state and local sales tax: 5.5%
Gas taxes and fees: 30 cents per gallon
Maine has been working to lower its income tax bite: In 2016, the top rate fell from 7.95% to 7.15%. However, the state’s “low” rate is 5.8% — higher than some other states’ top rate. Maine lawmakers enacted legislation in September that brought the state’s tax code into conformity with the federal tax overhaul, thus averting a multi-million-dollar tax hike.
The property tax on Maine's median home value of $176,000 is $2,329, the 17th-highest in the U.S.
The Pine Tree State is one of only a few states that prohibit local jurisdictions from imposing their own sales tax, so you won’t pay more than 5.5%, no matter where you live or shop. (Food for home consumption and prescription drugs are exempt from sales taxes, but prepared foods in restaurants are taxed at 8%.)
Maine imposes an annual excise tax on vehicles that’s based on the car’s age and value. The owner of a three-year-old car with a manufacturer’s suggested retail price of $19,500 would pay $263. The state’s gas tax of 30 cents per gallon is below the national average of 34 cents per gallon.
State income tax: 3.35% (on income less than $38,700/individual, $64,600/joint) - 8.75% (on taxable income more than $195,450/individual, $237,950/joint)
Average state and local sales tax: 6.18%
Gas taxes and fees: 32 cents per gallon
Vermont gets compared to New Hampshire a lot: The mountainous states are roughly the same shape and share a border. Their tax regimes are night and day, though. Where New Hampshire has no income tax and no sales tax, Vermont has income tax rates that reach 8.75%.
While sales taxes in the Green Mountain’s state are modest, at 6.18% on average (and most clothing is exempt), it’s an expensive place to own a home (as well as heat it). The median property tax on the state’s median home value of $218,900 is $3,893, the eighth-highest in the U.S. What’s more, changes the state made to its tax structure in the wake of the new federal tax law mean that all filers will now have to take Vermont's standard deduction. If you have a big mortgage, for example, that might well work against you.
State income tax: 1.4% (on taxable income of less than $2,400/individual, $4,800/joint) — 11% (on taxable income of more than $200,000/individual, $400,000/joint)
Average state and local sales tax: 4.35%
Gas taxes and fees: 48 cents per gallon (varies by county)
Hawaii has reimposed three tax brackets at the top end, as high as 11% on taxable income of more than $400,000/individual, $200,000/joint.
Hawaii’s average combined state and local sales tax rate is 4.35%, among the lowest in the U.S. However, that’s misleading, because Hawaii imposes its sales tax (technically an excise tax levied on businesses) on virtually all transactions, including some services, and that’s part of the reason prices can seem so eye-poppingly high to mainlanders. (Prescription drugs are exempt.) Vehicles are subject to a 4% sales tax , even if they’re purchased on the mainland.
While property values are high, property taxes as a percentage of home value are the lowest in the U.S. The property tax on the state's median home value of $538,400 is $1,459. Gas taxes are 48 cents a gallon, well above the national average and the fourth-highest in the U.S.
State income tax: 1% (on income less than $8,544/individual, $17,088/joint) — 13.3% (on income more than $1 million/individual, $1,145,960/joint).
Average state and local sales tax: 8.55%
Gas taxes and fees: 56 cents per gallon
Some California residents will see their income taxed at the country's highest rate, 13.3%, which hits taxable income over $1 million for singles and $1,145,960 for married joint filers.
California also has the highest statewide sales tax, at 7.25%. The average state and local combined rate is 8.55%, according to the Tax Foundation; in some cities, the combined rate is over 10%. Food and prescription drugs are exempt.
Gas is taxed at 56 cents per gallon—the second highest in the U.S. California also hits car owners with an annual vehicle license fee (VLF) of 0.65% of the purchase price of the vehicle (or the value when it was acquired) that’s reduced each year for the first 11 years of car ownership. For example, the VLF on a two-year-old vehicle purchased for $25,000 would be $147.
Californians have lower property rates than residents of other high-tax states, but in a state with some of the highest real estate prices in the U.S., bills are still pricey. The property tax on the state’s median home value of $409,300 is $3,237. In the Bay Area and other parts of the state where an average home costs upwards of $1 million, the $10,000 cap on state and local tax deductions will effectively increase the cost of property taxes.
State income tax: 1.4% (on income less than $20,000) — 8.97% (on income more than $500,000). New Jersey allows localities to impose their own income tax; the average local levy is 0.5%, according to the Tax Foundation
Average state and local sales tax: 6.60%
Gas taxes and fees: 41 cents per gallon
Income tax rates for Garden State residents are relatively low compared with some other tax-unfriendly states. But while New Jersey gives residents a break on income taxes, it brings the hammer down when they buy a home. New Jersey’s property taxes are the highest in the U.S. The property tax on the state’s median home value of $316,400 is $7,601. Average property taxes exceed $10,000 in Bergen, Essex, Union and Morris counties, so residents in those heavily-populated areas will be affected by the $10,000 cap on the federal tax deduction for state and local taxes.
Food, prescription and nonprescription drugs, clothing and footwear are exempt from the 6.625% state sales tax. Because some areas, such as Newark, charge a reduced 3.313% sales tax on certain sales, New Jersey’s average state and local combined sales tax rate is only 6.60%.
As any East Coast traveler can tell you, New Jersey is no longer a place where you can hop off an exit and buy cheap gas. At 41 cents per gallon, the state’s gas tax is now the ninth-highest in the country.
State income tax: 3% (on income less than $10,000/individual, $20,000/joint)— 6.99% (on income more than $500,000/individual, $1 million/joint)
Average state and local sales tax: 6.35%
Gas taxes and fees: 44 cents per gallon
The Constitution State is an expensive place to live. Connecticut’s property taxes are the fourth-highest in the U.S., so the $10,000 cap on the federal tax deduction for state and local taxes will sting. The median property tax on the state’s median home value of $269,300 is $5,443, but residents in high-income areas such as Fairfield County pay more than $10,000 in property taxes, so their federal tax deductions for state and local taxes will be curtailed.
At 44 cents a gallon, Connecticut has the seventh-highest gas taxes in the U.S.
On the plus side, there are no local sales taxes in Connecticut, so you’ll pay only the statewide rate of 6.35% (slightly below average) on most of your purchases. Groceries, prescription and non-prescription drugs aren’t taxed, but just about everything else is, including a broad range of services. Luxury items, such as cars valued at $50,000 or more or jewelry worth more than $5,000, are taxed at 7.75%, which means a $6,000 engagement ring would cost you $6,465 including tax.
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.