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All Contents © 2019The Kiplinger Washington Editors
By Rocky Mengle, Tax Editor
David Muhlbaum, Senior Online Editor
| October 1, 2019
The economy is looking better for workers these days. Unemployment rates are low, job growth is strong and wages are increasing. Still, to get a better job, you sometimes have to pack your bags and move across state lines.
But before you accept a job offer in another state, make sure you check out the cost of living in your prospective employer's city. You'll want to look at the cost of housing, of course, but you should consider the impact of state and local taxes on your bottom line, too. As our annual State-by-State Guide to Taxes shows, state 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.
To help you determine how big of a tax bite each state would take out of your hard-earned cash, we estimated the tax burden in each state for a hypothetical married couple with a combined earned income of $150,000, $10,000 in dividend income, two dependents and a $400,000 home (with a mortgage). Based on our findings, we updated our list of the 10 most tax-friendly states in the U.S. for 2019 (starting with the most-friendly state). If you're taking a job in another state, or relocating for other reasons, you'll want to check it out to see if your state taxes are likely to go up or down after the move.
See the final slide for a complete description of our ranking methodology and sources of information.
National Park Service
State Income Tax: None
Effective Income Tax Rate: 0%
Average State and Local Sales Tax: 5.32%
Average Property Tax: $635 per $100,000 in home value
Gas Taxes and Fees: 24 cents per gallon
Go to Wyoming's Full State Profile
One reason why Wyoming tops our tax-friendly list is because generous revenues from mineral and energy extraction continue to flow into the state. That allows the Equality State to keep taxes on residents low across the board.
There is no income tax in Wyoming, and its gas tax is well below the national average of 31.7 cents per gallon. The state's combined state and average local sales tax rate is also the third-lowest of all the states with a sales tax. And at 2 cents per gallon, Wyoming has the lowest beer tax in the U.S.
People who move to these parts like to own a lot of land, and low property taxes make that dream affordable. The property tax on our hypothetical couple's $400,000 home in Wyoming would be about $2,540, which is the ninth-lowest amount in our rankings.
Average State and Local Sales Tax: 8.14%
Average Property Tax: $693 per $100,000 in home value
Gas Taxes and Fees: 33.78 cents per gallon
Go to Nevada's Full State Profile
The Silver State is another no-income-tax haven. Property taxes in Nevada are below-average, too—estimated to be only $2,771, on average, for a $400,000 home.
Nevada receives more than $1.5 billion in taxes and fees annually from the hotel-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%, which is tied with Missouri for the 14th-highest in the nation.
In addition to sales taxes, vehicle owners are charged an annual "governmental 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.
Gas taxes in Nevada are slightly above the national average of 31.7 cents per gallon. However, according to the Tax Foundation, the state has the third-lowest average tax on cellphone wireless services—only 3.27%.
State Income Tax: 2% on interest and dividends
Average State and Local Sales Tax: 9.47%
Average Property Tax: $768 per $100,000 in home value
Gas Taxes and Fees: 27.4 cents per gallon
Go to Tennessee's Full State Profile
There's no broad-based income tax in the Volunteer State—only interest and dividends are subject to Tennessee's limited income tax. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is also exempt from the 2% (for 2019) tax, and it's waived if you're at least 100 years old. Plus, the tax is being phased out at a rate of 1% per year. So it will be completely eliminated by 2021.
Property taxes in Tennessee are reasonable, too. Expect to pay only about $3,072 per year for a $400,000 home, which is well below the national average. Gasoline taxes are below-average in Tennessee as well. You'll pay 27.4 cents per gallon to the state when you fill up your tank.
Tennessee sticks it to you when you're shopping, though. At 9.47%, its average combined state and local sales tax rate is tied for the highest in the nation, according to the Tax Foundation. Tennessee also has the highest beer tax in the country—$1.29 per gallon. That's a real buzzkill!
Average State and Local Sales Tax: 7.05%
Average Property Tax: $1,041 per $100,000 in home value
Gas Taxes and Fees: 41.99 cents per gallon
Go to Florida's Full State Profile
Florida has no income tax, which keeps the overall state and local tax burden down. However, other taxes in the Sunshine State are average, or even above-average, when compared to other locations.
Property taxes, for instance, are right around the national average. For a $400,000 home in Florida, the average annual property tax bill will be about $4,166. The state's average combined state and local sales tax rate is middle-of-the-road, too. It's 7.05%, according to the Tax Foundation. Vehicles are taxed at the state's 6% sales tax rate, but a county sales tax (based on where the buyer lives) may also be due on the first $5,000 of the purchase price or on each lease payment.
The gas tax in Florida is very high. At 41.99 cents per gallon, it's the 10th-highest state tax on gasoline in the country.
Average State and Local Sales Tax: 1.76%
Average Property Tax: $1,234 per $100,000 in home value
Gas Taxes and Fees: 14.66 cents per gallon
Go to Alaska's Full State Profile
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 can impose local sales taxes as high as 7.5%, the average sales tax is 1.76%, according to the Tax Foundation. Anchorage, Alaska's largest city, has no sales tax.
If our hypothetical couple were to purchase a $400,000 home in Alaska, their estimated property tax bill would come to about $4,936 per year. That's above the U.S. national average.
There's one other thing about living in Alaska that's worth noting: Alaska gives each legal resident who has lived in the state for a full year an annual "Permanent Fund Dividend." The 2019 dividend will be $1,606. (The highest payment ever was $2,072 in 2015.)
Average State and Local Sales Tax: 9.21%
Average Property Tax: $1,125 per $100,000 in home value
Gas Taxes and Fees: 49.4 cents per gallon
Go to Washington's Full State Profile
Washington makes this list of the most tax-friendly states because it doesn't have an income tax. Unfortunately, some of the other state and local taxes in the Evergreen State aren't quite so taxpayer friendly.
The Tax Foundation's average combined state and local sales tax rate for Washington is the third-highest in the country. The state's gasoline tax is the fourth-highest in the nation. At 19.41%, Washington also has the third-highest average state and local cellphone wireless service tax in the U.S.
Washington is also one of a handful of states with an estate tax. For 2019, it's imposed on estates worth more than $2,193,000. The estate tax rates range from 10% to 20%.
Property taxes in Washington are more modest. For a $400,000 home, the average tax bill in the state will run you about $4,499 per year, which is close to the national average.
Average State and Local Sales Tax: 6.4%
Average Property Tax: $1,388 per $100,000 in home value
Gas Taxes and Fees: 30 cents per gallon
Go to South Dakota's Full State Profile
You'll need to bundle up during 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 about average for the U.S. However, while prescription drugs are exempt from sales taxes, food, over-the-counter drugs and many services are taxed in the Mount Rushmore State. Gas taxes are in the middle of the pack nationally, too.
Property taxes in South Dakota are above average for the U.S. For a $400,000 house in the state, the average property tax bill comes to about $5,551.
Courtesy Aaronyoung777 via CC BY 4.0
State Income Tax: 1.1% (on taxable income of $39,450 or less for single filers; $65,900 or less for joint filers) — 2.9% (on taxable income over $433,200)
Effective Income Tax Rate: 1.1% for single filers; 1.58% for joint filers
Average State and Local Sales Tax: 6.85%
Average Property Tax: $1,056 per $100,000 in home value
Gas Taxes and Fees: 23 cents per gallon
Go to North Dakota's Full State Profile
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.
Property taxes in North Dakota are just above the national average. The tax on a $400,000 home owned by our hypothetical couple is estimated to be $4,223 per year.
At 23 cents per gallon, gas taxes in North Dakota are well below the national average of 31.7 cents per gallon.
State Income Tax: 2.59% (on taxable income of $26,500 or less for single filers; $53,000 or less for joint filers) — 4.5% (on taxable income of over $159,000 for single filers; over $318,000 for joint filers)
Effective Income Tax Rate: 2.77% for single filers; 3.24% for joint filers
Average State and Local Sales Tax: 8.39%
Average Property Tax: $754 per $100,000 in home value
Gas Taxes and Fees: 19 cents per gallon
Go to Arizona's Full State Profile
For 2019, Arizona's top income tax rate of 4.5% doesn't kick in until taxable income exceeds $159,000 for single filers or $318,000 for married couples filing jointly. That's not a very high top rate to begin with, and having a fairly high threshold for that rate means that relatively few people will be taxed at the state's highest rate.
The state-wide average property tax on a $400,000 home in Arizona is only $3,014 per year, which is below average for the U.S. And at 19 cents per gallon, state gas taxes are well below the national average.
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 8.39%, 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 $2.80 for new vehicles and $2.89 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.
State Income Tax: 5% on interest and dividends
Average State and Local Sales Tax: 0%
Average Property Tax: $2,296 per $100,000 in home value
Gas Taxes and Fees: 23.83 cents per gallon
Go to New Hampshire's Full State Profile
Like Tennessee, New Hampshire has a very limited income tax that only applies to dividend and interest income. There's no sales tax in the Granite State, either.
New Hampshire residents also don't pay too much state tax at the pump. At only 23.83 cents per gallon, the state's gasoline tax is well below the national average.
Local governments in New Hampshire dig deep into your pocket for property taxes, though. If our hypothetical couple were to purchase their $400,000 home in the state, we estimate that their annual property tax bill would be a whopping $9,186. That's the third-highest estimated amount in our rankings for a home with that price point.
Our maps and other tax content include data and state tax-policy details from a wide range of sources. To create our rankings, we created a metric to compare the tax burden in all 50 states and the District of Columbia.
We looked at each state's tax agency, plus this helpful document from the Tax Foundation. Effective tax rates represent the ratio of income tax due to state taxable income for our sample filers. See more about that calculation below under "Rankings."
Values for median property tax paid and assessed home value in each state come from the U.S. Census American Community Survey and are 2017 data, the most recent available. We created a ratio of these: average taxes paid per $100,000 of home value.
Each state's tax agency. 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 local governments 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 July 2019 data but made several updates to reflect new rates in Arkansas and Alabama. Values include excise taxes, sales taxes (when applicable) and a variety of fees that states impose.
Each state's tax agency.
The Tax Foundation.
The "tax-friendliness" of a state depends on the sum of income, sales and property tax paid by our sample filers.
To determine income tax, we prepared returns for a married couple with two dependent children, an earned income of $150,000, and qualified dividends of $10,000. They paid $10,000 in mortgage interest. Since some states have local income taxes, we domiciled our filers in each state's capital, from Juneau to Cheyenne. We calculated these 2018 returns using software from Credit Karma.
How much the sample filers paid (and deducted on their income tax return) in property taxes was calculated assuming a residence with $400,000 assessed value and each state's average tax rate.
How much they paid in sales taxes was calculated using the IRS' Sales Tax Calculator, which is localized to zip code. To determine those, we used Zillow to determine zip codes with housing inventory close to our sample assessed value.
We also calculated the effective tax rate for a single filer (earning $32,000 a year, with no dependents), but those returns were not used to calculate rankings.