No single state has the lowest taxes across all categories

Tax burden depends on what you earn, where you spend money, and what you own. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax — but they make up the difference with sales tax, property tax, or both. A state with no income tax might still have the highest overall tax burden for your situation. The state that costs you least depends on your income level, whether you own property, and how much you spend.

If you are comparing states to move to, calculate your actual tax bill in each one using your real numbers: your salary, property value if you own, and typical annual spending. A retiree living on investment income faces different tax rates than a salaried employee. A homeowner pays property tax; a renter does not.

Key Takeaways

  • Eight states — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax, but most offset this with higher sales or property taxes.
  • Total tax burden is the sum of income tax, sales tax, and property tax, so comparing one type alone gives an incomplete picture.
  • Your actual tax bill depends on your income level, whether you own property, and how much you spend, so the lowest-tax state for one person may not be the lowest for another.
  • States with no income tax often have sales tax rates between 5 and 7 percent, and property tax varies widely even within no-income-tax states.

States with no state income tax

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not tax wages or salary. New Hampshire and Tennessee tax only investment income (dividends and interest), not wages. Montana and Oregon have income tax but exempt some retirement income.

The eight no-income-tax states are not all equally affordable. Alaska has no sales tax but charges property tax. Florida has no income tax and no sales tax on groceries, but property tax is moderate to high. Nevada has no income tax and no property tax on vehicles, but sales tax is 6.85 percent. Texas has no income tax but property tax averages around 1.6 percent of home value statewide, though it varies by county. South Dakota has no income tax and low sales tax (4.5 percent), but property tax is moderate. Tennessee has no income tax but sales tax is 9.55 percent, the highest in the nation. Washington has no income tax and no sales tax on groceries, but sales tax on other goods is 6.5 to 10.25 percent depending on county. Wyoming has no income tax, no sales tax, and low property tax.

How to calculate your total tax burden

Add three numbers: state income tax on your salary, state sales tax on what you spend, and property tax on what you own. The sum is your total state tax burden.

For income tax, use your gross salary and the state's tax brackets. Most states with income tax have rates between 3 and 10 percent, though some have flat rates. For sales tax, estimate your annual spending on taxable goods and multiply by the state rate. Groceries are exempt in most states, but restaurant meals, clothing, and household goods are taxed. For property tax, find your home's assessed value and multiply by the local rate, which varies by county even within the same state.

Example: A married couple earning $100,000 combined in Texas pays no income tax, roughly $1,200 in sales tax (assuming $20,000 in taxable spending), and $1,600 in property tax on a $100,000 home (1.6 percent average). Total: about $2,800. The same couple in California pays roughly $5,000 in income tax, $1,500 in sales tax, and $1,500 in property tax. Total: about $8,000. But a retiree living on $40,000 in investment income faces different rates in each state, so the comparison changes.

Property tax varies widely within no-income-tax states

Even among states with no income tax, property tax differs dramatically by location. Wyoming has the lowest average property tax rate in the nation at around 0.6 percent of home value. Texas averages 1.6 percent but ranges from under 1 percent in some counties to over 2 percent in others. Florida averages around 0.8 percent. Nevada averages around 0.6 percent. South Dakota averages around 0.8 percent. Tennessee averages around 0.7 percent. Washington has no property tax on vehicles but does tax real estate at around 0.84 percent. Alaska's property tax varies by borough but averages around 1.2 percent.

If you own a home worth $300,000, the difference between a 0.6 percent rate and a 1.6 percent rate is $3,000 per year. County-level variation means two homes of equal value in the same state can have property tax bills that differ by hundreds of dollars annually.

Sales tax is highest in states with no income tax

States that forgo income tax revenue often rely on sales tax instead. Tennessee has the highest combined state and local sales tax in the nation at 9.55 percent. Washington's rate ranges from 6.5 to 10.25 percent depending on county. Texas ranges from 8.25 to 8.25 percent depending on local additions. Nevada is 6.85 percent. Florida ranges from 6 to 7.5 percent. South Dakota is 4.5 percent, the lowest among no-income-tax states. Alaska has no state sales tax, though some municipalities charge local sales tax.

Sales tax hits lower-income households harder because they spend a larger share of their income on taxable goods. A household earning $40,000 and spending $30,000 on taxable goods pays 9.55 percent sales tax in Tennessee ($2,865) but only 4.5 percent in South Dakota ($1,350). A household earning $150,000 and spending $50,000 on taxable goods pays the same rates but the tax is a smaller share of their income.

Low-income households face different tax burdens than high-income households

A person earning $30,000 per year pays little or no income tax in most states, so sales tax and property tax matter more. A person earning $150,000 per year pays significant income tax in high-tax states, so income tax matters most. A retiree living on $50,000 in Social Security and investment income may face no income tax in some states and substantial tax in others, depending on whether the state taxes Social Security or investment income.

Wyoming and South Dakota are often cited as low-tax states for high earners because they have no income tax and low property tax. For low-income renters who spend most of their money on taxable goods, South Dakota's 4.5 percent sales tax is lower than Tennessee's 9.55 percent, even though both states have no income tax. For retirees, the answer depends on whether the state taxes Social Security (it does not in most states) and how much investment income you have.

Other states with lower-than-average tax burdens

Montana has state income tax but exempts retirement income, making it attractive to retirees. Oregon has state income tax but no sales tax, so the total burden for someone who spends heavily but earns moderately may be lower than in a state with both income and sales tax. Mississippi, Louisiana, and Arkansas have low income tax rates (3 to 5.75 percent) and moderate sales tax, resulting in below-average total burdens for middle-income households.

Indiana, Kentucky, and Pennsylvania have flat income tax rates (3.23 to 3.87 percent) and moderate sales tax, making them predictable for budgeting. New Hampshire taxes only investment income, not wages, so a salaried employee pays no state income tax but an investor pays tax on dividends and interest.

Frequently Asked Questions

Does moving to a no-income-tax state always save money?

Not necessarily. A state with no income tax often has higher sales tax or property tax. If you earn a high salary and own property, you may pay less total tax in a no-income-tax state. If you rent and spend little, you may pay more in sales tax than you would have paid in income tax elsewhere. Calculate your actual bill in each state using your real numbers.

What about federal taxes — do they change if I move states?

No. Federal income tax is the same in every state. State taxes are separate. Moving to a no-income-tax state reduces only your state tax bill, not your federal bill. You still owe federal tax on your salary, investment income, and capital gains.

Can I claim property tax as a deduction on my federal return?

Yes, but only up to $10,000 per year combined with state and local income tax. This limit applies to all taxpayers regardless of state. High-tax states may hit this cap; low-tax states typically do not.

Do retirees get special tax breaks in low-tax states?

Some do. Many states exempt Social Security from income tax. Some exempt retirement account withdrawals (401k, IRA) or pension income. A few, like Montana and Mississippi, exempt all retirement income. Check the specific state's rules if you are retired or plan to retire soon.

If I work remotely for a company in a high-tax state, do I pay that state's tax or my home state's tax?

You pay your home state's tax if you live and work there, even if your employer is in another state. Some states tax remote workers based on where the employer is located, but most tax based on where you live. Confirm with your state's tax authority if you are unsure.