9 States with No Income Tax
If you choose to live in these states, every penny you earn is safe from state income tax (although two of the states do tax some dividends and interest). But that doesn't mean you won't have to pay other state and local taxes.
Everyone hates paying taxes. So why don't we all live in one of the nine states without an income tax? Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming don't tax earned income at all. If you're retired, that also means no state income tax on your Social Security benefits, withdrawals from your IRA or 401(k) plan, and payouts from your pension. That sounds pretty darn good to me!
But, of course, no state is perfect. The states without an income tax still have to pay for roads and schools, so residents still have to pay other taxes to keep the state running (like sales, property and estate taxes). And sometimes those other taxes can be on the high end. New Hampshire and Texas, for example, have some of the highest property taxes in the country. So, if you're thinking of moving to a state without an income tax, continue reading to see some of the other taxes you'll have to pay in those states. Maybe the state you're in right now won't look so bad.
Average combined state and local sales tax values are for 2020 and were compiled by the Tax Foundation. Property tax data is from 2019 and is based on information from the U.S. Census Bureau. Overall tax ratings are from the State-by-State Guide to Taxes on Middle-Class Families.
Alaska
Overall Rating for Taxes: Most Tax-Friendly
State Income Taxes: None.
Sales Tax: Alaska is one of five states with no state sales tax. However, localities can levy sales taxes, which can reach 7.5%. Higher rates are found in locations that lack a property tax. But, according to the Tax Foundation, the statewide average is only 1.76%.
Property Taxes: In Alaska, the median property tax rate is $1,182 per $100,000 of assessed home value. That's slightly above the national average.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
Florida
Overall Rating for Taxes: Most Tax-Friendly
State Income Taxes: None.
Sales Tax: 6% state levy. Localities can add as much as 2.5%, and the average combined rate is 7.05%, according to the Tax Foundation. The combined rate is middle-of-the-road when compared to other states.
- Groceries: Exempt
- Clothing: Taxable
- Motor Vehicles: Taxable (additional county tax on first $5,000 of purchase price may apply)
- Prescription Drugs: Exempt
Property Taxes: In Florida, the median property tax rate is $830 per $100,000 of assessed home value. That's also pretty average when compared nationally.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
Nevada
Overall Rating for Taxes: Most Tax-Friendly
State Income Taxes: None.
Sales Tax: 6.85% state levy. Localities can add as much as 1.53%, and the average combined rate is 8.23%, according to the Tax Foundation. That's a pretty high combined rate.
- Groceries: Exempt
- Clothing: Taxable
- Motor Vehicles: Taxable
- Prescription Drugs: Exempt
Property Taxes: Nevada's median property tax rate is $533 per $100,000 of assessed home value, which is one of the lowest rates in the U.S.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
New Hampshire
Overall Rating for Taxes: Mixed Tax Picture
State Income Taxes: New Hampshire doesn't tax earned income. But there's a 5% tax on dividends and interest in excess of $2,400 for individuals ($4,800 for joint filers).
Sales Tax: New Hampshire has no state or local sales tax.
Property Taxes: The median property tax rate in New Hampshire is $2,050 per $100,000 of assessed home value. That's the third-highest rate in the country.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
South Dakota
Overall Rating for Taxes: Tax-Friendly
State Income Taxes: None.
Sales Tax: 4.5% state levy. Localities can add as much as 4.5%, and the average combined rate is 6.4%, according to the Tax Foundation. That's a below average combined rate.
- Groceries: Taxable
- Clothing: Taxable
- Motor Vehicles: Exempt from ordinary sales tax, but taxable under special 4% excise tax
- Prescription Drugs: Exempt
Property Taxes: The median property tax rate in South Dakota is $1,219 per $100,000 of assessed home value. That's above the national average.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
Tennessee
Overall Rating for Taxes: Most Tax-Friendly
State Income Taxes: Tennessee has no state income tax. But dividends and some interest are subject to the Hall Tax at a 1% rate. The first $1,250 in taxable income for individuals ($2,500 for joint filers) is exempt. 2020 is the last year for the tax, which is being phased out. Also, the tax is waived if you're over 100.
Sales Tax: 7% state levy. There's also an additional state tax of 2.75% on sales of single items that applies to the portion of the sales price from $1,600 to $3,200. Localities can add up to 2.75%, with an average combined state and local rate of 9.55%, according to the Tax Foundation. That's the highest combined rate in the nation. Local taxes are limited, though: Only the first $1,600 of any single item is taxable.
- Groceries: Taxable (4% state rate; additional local taxes may apply)
- Clothing: Taxable
- Motor Vehicles: Taxable (7% basic rate, plus 2.75% state tax on sales price between $1,600 and $3,200; additional local taxes may also apply)
- Prescription Drugs: Exempt
Property Taxes: The median property tax rate for Tennessee homeowners is $636 per $100,000 of assessed home value, which is below the national average.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
Texas
Overall Rating for Taxes: Mixed Tax Picture
State Income Taxes: None.
Sales Tax: 6.25% state levy. Localities can add up to 2%, with an average combined rate of 8.19%, according to the Tax Foundation. Texas' combined rate is well above the U.S. average.
- Groceries: Exempt
- Clothing: Taxable
- Motor Vehicles: Taxable
- Prescription Drugs: Exempt
Property Taxes: The median property tax rate in Texas is $1,692 per $100,000 of assessed home value. That's tied for the seventh-highest rate in the country.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
Washington
Overall Rating for Taxes: Most Tax-Friendly
State Income Taxes: None.
Sales Tax: 6.5% state levy. Municipalities can add up to 4% to that, with the average combined rate at 9.23%, according to the Tax Foundation. Washington's combined rate is the fourth-highest in the nation.
- Groceries: Exempt
- Clothing: Taxable
- Motor Vehicles: Taxable (6.5% ordinary rate, plus additional 0.3% tax)
- Prescription Drugs: Exempt
Property Taxes: The Washington median property tax rate is $929 per $100,000 of assessed home value, which is close to the midpoint when compared to other states.
Inheritance and Estate Taxes: An estate tax is imposed by Washington on estates exceeding $2.193 million (the exemption threshold is subject to adjustment each year for inflation). Tax rates range from 10% to 20%. The state offers an additional $2.5 million deduction for family-owned businesses valued at less than $6 million.
Wyoming
Overall Rating for Taxes: Most Tax-Friendly
State Income Taxes: None.
Sales Tax: 4% state levy. Municipalities can add up to 2% to that, with a combined rate of 5.34%, according to the Tax Foundation. The combined rate is the eight-lowest in the U.S.
- Groceries: Exempt
- Clothing: Taxable
- Motor Vehicles: Taxable
- Prescription Drugs: Exempt
Property Taxes: In Wyoming, the median property tax rate is $575 per $100,000 of assessed home value, which is tied for the tenth-lowest in the nation.
Inheritance and Estate Taxes: There is no inheritance tax or estate tax.
