The 10 Best States for Taxes

School of Financial Wellness

The word tax written on wooden blocks meant to represent state taxes.

When deciding where to live, there are many factors to consider. Recreation and job opportunities are two of the most common factors, and you may also consider quality of services such as healthcare, education, and infrastructure. Another important factor that should influence your decision on where to retire is each state’s tax burden.

State taxes fund important services including education, healthcare, and infrastructure, but paying for those services can cut into your bottom line. States collect most of their revenue by taxing citizens’ income, sales, and property. However, there are nine states that do not tax wages and seven of those don’t tax any income that their residents earn. Find out which states have the lowest total tax burden and how much that could impact your retirement plan.

Be sure to follow us on social media so you don’t miss part two of this series where we detail the 10 Worst States for Taxes.

10 Best States for Taxes

In developing a list of the best states for taxes, we used several rating criteria. First, we looked at the income tax rate and the total tax rate for each state. In addition, we considered each state’s rankings on education, healthcare and infrastructure since these services are usually funded by taxes.

#10 Pennsylvania

Pennsylvania is the only state on this list that charges its citizens an income tax. The 3.07% flat tax is the lowest flat tax rate of any state that has an income tax. The total tax burden that citizens bear, including sales and property tax, is close to the national average at 8.46%.

Today, Pennsylvania’s economy is struggling to keep up with the rest of the country. Job growth is positive, but employment is growing more slowly than the national average. Pennsylvania has the 8th most affordable housing of any state and housing prices are well below the national average. It is ranked the 15th most affordable state overall making it one of our best states for retirement.

#9 Tennessee

The Volunteer state limits their tax to interest and dividend income, not income from wages. With no tax on wages and the third lowest property tax, Tennessee has the second lowest overall tax burden at 5.74%. In turn, Tennessee has the nation’s fifth lowest cost of living and home prices well below the national average.

Tennessee’s economy is ranked among the top third of states in the country. It is built around the manufacturing, mining, logging, and construction industries. The job growth rate in Tennessee is double the national average and employment is strong in the state. In addition, it is ranked as the 17th most affordable state. With its natural beauty and a low cost of living, the Volunteer State also made our list as one of the best states for retirees.

#8 New Hampshire

New Hampshire also limits its income tax to interest and dividend income and does not tax wages. New Hampshire residents pay the highest property tax burden of any state, but the state has the third lowest sales tax.

The Granite State also ranks 13th best in the nation for both healthcare and education. New Hampshire is considered a safe place to live, as it is ranked the best state in the nation for crime and corrections – services that also benefit from state taxation. In fact, crime in New Hampshire is much lower than the national average with violent crime rates and incarceration rates less than half of the national average.

The natural environment in New Hampshire is virtually unhindered by pollution. Air quality rates are much higher than national averages. Industrial toxin prevalence is over twenty times lower than the national average. These statistics combine to make New Hampshire the second-best natural environment in the nation.

New Hampshire also tops rankings for economic opportunities. The median household income is 19% higher than the national average and the poverty rate is almost 40% lower than the national average. Finally, New Hampshire ranks sixth in our Best States for Retirement rankings.

#7 Alaska

Alaska, nicknamed The Last Frontier, does not charge income tax or sales tax. The state has the lowest total tax burden for its residents at just 5.10%. Alaska has a small population and immense resources that allow for other sources of state revenue, outside of taxes.

Alaska is the largest state by land mass but has the lowest population density. About 40% of the state’s population lives in the capital city, Anchorage. Oil was discovered in the mid-1900s and still makes up the majority of the Alaskan economy. The Trans-Alaska Pipeline, completed in 1977, has contributed to about 90% of the state’s economy. This one-dimensional economy has led to Alaska’s economy ranking lowest of any state in the nation in 2021, despite its immense resources. Job growth is below the national average, and Alaska is seeing some of its residents leave the state to search for opportunities elsewhere.

#6 Nevada

Nevada, the Silver State, is one of seven states with no state income tax. It has the second highest sales tax in the U.S. at 6.11% and its total tax burden is average at 8.23%.

Nevada experienced a boom of migration in the mid-1800s when large quantities of silver were discovered in the state’s deserts. Since then, Nevada has become known for its entertainment industry, led by popular cities Las Vegas and Reno.

Despite the challenges of a desert landscape, Nevada has the best infrastructure in the country. Its roads and bridges are in better condition than most of the country, and the state uses nearly 5% more renewable energy than the national average. Internet access is also ranked number one in the country.

The economy in Nevada is growing quickly, with job growth outpacing the national average by more than 235%. Key industries in the Silver State include tourism, aerospace and defense, energy, and information technology. Mining makes up the state’s largest export sector.

In our rankings, Nevada claims the 37th spot for best states to live. Its strong economy and infrastructure are sometimes overshadowed by low air and water quality, in addition to below average health care and education scores.

#5 Wyoming

The Cowboy State is one of seven states that have no income tax. In addition to foregoing taxing income, Wyoming has one of the lowest total tax burdens for its citizens. With the third lowest total tax burden in the nation, the average citizen pays just 6.14% in state taxes.

Wyoming is home to sprawling national forests, stunning mountain ranges, and scenic national parks. Wyoming is the tenth largest state in terms of land mass but has the lowest population of any state. Ranching is an important way of life in the Cowboy State, and more than two-thirds of the state’s land area is devoted to livestock grazing.

Even with low state taxes, Wyoming is ranked above average in education. Higher education in Wyoming is ranked fourth best in the country. Wyoming also has the eighth best infrastructure in the nation despite roads and water systems needing significant improvement.

#4 Texas

Texas is one of the seven states that do not charge income tax. With moderate property and sales tax burdens, Texas has the 21st lowest total tax burden for its citizens at 8.19%. Home prices are low compared to the rest of the nation and Texas is ranked the 22nd most affordable state.

The population of the Lonestar State soared in the early 1900s with many people moving to the state during the oil boom. Texas is still known as a hub for the oil industry in the U.S. and many of the state’s largest companies are part of it. Agriculture is also an important part of the state’s economy and culture, and Texas leads the nation in livestock production.

In the 1990s, tech companies moved into Texas cities seeking the low taxes and low-cost labor. Overall, Texas has a diverse economic base, the 9th best state economy, and offers many opportunities for employment in various industries.

#3 Washington

Washington, known as the Evergreen State, does not charge income tax. The state makes up for not charging income tax by having the third highest sales tax of any state. Total tax burden for Washington’s citizens is average at 8.34%.

The Evergreen state outperformed other states and ranked in the top 10 states for health care, education, overall economy, infrastructure, and fiscal stability. This indicates that tax dollars are well spent. Washington is geologically diverse and is made up of mountains, deserts, rainforests, and coastline. Known as a key exporter, an aerospace hub, and a food and agriculture hotspot, Washington has a robust economy.

Despite its many opportunities and no income tax, Washington is an expensive state to call home. It is ranked 44th out of the 50 states for overall affordability. Housing is more expensive than many parts of the country and is especially high in the Seattle metro area.

#2 South Dakota

South Dakota does not charge tax on its citizen’s income. It also has the 8th lowest total tax burden at 7.37%. South Dakota is ranked the number 2 most fiscally stable state in the U.S. based on its credit rating, balanced budget, and liquidity.

South Dakota is home to Mount Rushmore, the Badlands National Park, and two of the longest caves in the world. State and national parks showcase the state’s natural wonders. South Dakota’s natural environment is ranked the third best in the country which is led by the state’s high scores in air quality, water quality, and low industrial toxins.

South Dakota also has a thriving agricultural sector and excels in bioscience, and petroleum product production. In addition to a strong economy, citizens enjoy a low cost of living. South Dakota is ranked the 14th most affordable state and housing prices are well below the national average. In addition, South Dakota ranks above average in both education and infrastructure. It also made our list for the best states for retirement.

#1 Florida

Florida does not charge income tax, and with no sales tax on food, the Sunshine State has the sixth lowest overall tax burden at just 6.97%. Its economy is heavily supported by tourism and the agriculture industry, which reduces the need for additional taxation. And by our measures, Florida is ranked the best state to live in for retirement.

Education in Florida is ranked third best in the country and the state takes the top spot for higher education – so tax dollars in this state have a return. Florida hosts three Universities that rank in the 100 Best Colleges nationally including two state universities: The University of Florida in Gainesville, and Florida State University in Tallahassee.

Florida is also ranked in the top 10 states for fiscal stability and overall economy. Job growth outpaces the national average, and Florida is seeing more and more people moving to the state to take advantage of its economic growth and natural environment.

Income tax by state table

Partner with Meld Financial

No matter where you decide to live, Meld Financial can help you plan for a dream retirement. Our team of legal, tax, and financial professionals can help you understand where you are now and build a plan to help you achieve your goals.

Our unique wealth management process, Financial Fingerprint™, was created over decades of helping our clients manage their wealth. In just about an hour, you can take stock of where you are financially and understand what you need to do to meet your goals. That’s because Financial Fingerprint™ is designed to be quick to assemble, easy to understand, and simple to modify as your circumstances change.

Contact us to get your Financial Fingerprint™.

Additional Sources:

Median Home prices: https://www.businessinsider.com/average-home-prices-in-every-state-washington-dc-2019-6#15-new-hampshire-290163-37

Infrastructure Rankings: https://infrastructurereportcard.org/state-by-state-infrastructure/

Education Rankings: https://www.usnews.com/news/best-states/rankings/education

Affordability Rankings: https://www.usnews.com/news/best-states/rankings/opportunity/affordability

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