No state has zero taxes across all categories, but several rank lowest in specific ones

The state with the lowest taxes depends on what you earn and spend. Nine states have no income tax at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (which taxes only investment income, not wages). But states without income tax often make up the difference with higher sales tax or property tax. A state that looks cheap on income might be expensive on groceries or housing. The real answer is: it depends on your situation.

If you are comparing states, you need to know three numbers: your income, what you plan to spend on goods and services, and whether you own or rent a home. A retiree living on investment income has different tax exposure than a wage earner with a mortgage. This guide walks through where each type of tax is lowest and how to think about the trade-offs.

Key Takeaways

  • Nine states impose no income tax on wages: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire.
  • States without income tax typically charge higher sales tax (ranging from 5.5% to 7.65% in these states) to fund services.
  • Property tax varies widely even among low-income-tax states; New Hampshire and Texas have notably different property tax burdens despite both having no income tax.
  • Your actual tax burden depends on whether you earn wages, live on investments, own property, or spend heavily on taxable goods.
  • Moving to a low-tax state for tax reasons alone often costs more in relocation and housing than you save in taxes.

States with no income tax on wages

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire do not tax wages. This is the most visible tax advantage, because income tax is what most people notice on a paycheck. If you earn $60,000 a year, you avoid state income tax in these nine states. That is real money.

But the absence of income tax does not mean the state is cheap overall. These states fund schools, roads, and services through other sources. Most rely heavily on sales tax. Washington and Tennessee have sales tax rates above 9% when you include local taxes. Alaska has no statewide sales tax, but Anchorage and other cities add local sales tax on top. New Hampshire has no sales tax but taxes investment income at 5%, which affects retirees and investors differently than wage earners.

If you are self-employed or own a business, check whether the state has a corporate income tax or business tax. Some no-income-tax states still tax business profits. Texas, for example, has no income tax but does impose a franchise tax on certain businesses.

Sales tax rates in low-income-tax states

Sales tax is the second major tax you encounter. It applies to most goods you buy, though groceries and prescription drugs are often exempt. The nine no-income-tax states have statewide sales tax rates ranging from zero (Alaska) to 7.65% (Tennessee, when combined with local rates). When you add local sales taxes, the total can reach 9% or higher in some cities.

Alaska stands out because it has no statewide sales tax. However, most Alaska cities and boroughs charge local sales tax, typically 1% to 7.5%. Juneau, Anchorage, and Fairbanks all have local sales tax. If you live in an unincorporated area, you may pay no sales tax, but most Alaskans do not have that option.

Tennessee and Washington have the highest combined sales tax rates among the no-income-tax states. Tennessee's statewide rate is 9.55% when local taxes are included. Washington's is 10.25% in some cities. If you spend $30,000 a year on taxable goods, the difference between a 5% state and a 10% state is $1,500 per year—significant, but often less than the income tax you save.

Property tax: the hidden variable

Property tax is where state tax burden becomes unpredictable. Two no-income-tax states can have wildly different property tax rates. Property tax is set by county and city, not always by state law, so your address matters as much as your state.

Texas has no income tax and relatively low property tax statewide (averaging around 1.6% of home value), but some counties charge more. New Hampshire has no income tax but property tax averages 2.1% of home value statewide and runs higher in many towns. Wyoming has no income tax and low property tax (around 0.6% statewide). Alaska has no income tax and low property tax (around 1.1%), but again, local variation matters.

If you own a $300,000 home, the difference between 0.6% property tax (Wyoming) and 2.1% (New Hampshire) is $4,500 per year. Over ten years, that is $45,000. Before you move for taxes, research the specific county and city where you plan to live, not just the state average.

States with low but not zero income tax

Some states charge income tax but at rates lower than the national average. Colorado, Louisiana, and Mississippi have income tax rates around 4.5% to 5.75%. Illinois has a flat 4.95% income tax. These states do tax wages, so they are not as attractive as the nine no-income-tax states for high earners, but they may offer a middle ground if you value other factors like schools, weather, or job markets.

The trade-off is usually that these states have lower sales tax or property tax than the no-income-tax states. Colorado, for example, has a 4.63% state income tax but a 4.0% sales tax (before local additions). Illinois has 4.95% income tax and 6.25% sales tax. If you earn a moderate income and spend less than you earn, the lower sales tax might offset the income tax.

How to calculate your actual tax burden

To compare states fairly, estimate your own taxes in each one. You need three numbers: your annual income, your annual spending on taxable goods, and your home value (if you own).

Start with income tax. If you earn $80,000 in Texas, you pay zero state income tax. In Colorado, you pay roughly $3,700. In New York, you pay roughly $5,000. That is your first comparison point.

Next, estimate sales tax. If you spend $25,000 per year on taxable goods (groceries and prescriptions usually are not taxed), multiply that by the state's combined sales tax rate. In Texas, that is $25,000 × 8.25% = $2,062. In Colorado, that is $25,000 × 4% = $1,000. In New York, that is $25,000 × 8.875% = $2,219.

Finally, add property tax. If you own a $400,000 home in Texas, you pay roughly $6,400 per year. In Colorado, roughly $5,200. In New York, it varies by county but averages around $5,600. Add all three, and you have your total state and local tax burden for that year.

When moving for taxes makes financial sense

Moving to a lower-tax state saves money only if the tax savings exceed the cost of moving and any difference in housing prices. If you are relocating for a job or family reasons anyway, the tax difference is a bonus. If you are moving solely for taxes, the math often does not work.

A move typically costs $5,000 to $15,000 in direct expenses (movers, deposits, travel). Housing prices in low-tax states are not always lower. Austin, Texas, and Denver, Colorado, have seen housing costs rise sharply in recent years. If you sell a home in a high-tax state and buy in a low-tax state, you may pay capital gains tax on the sale, which can offset years of tax savings.

Moving makes more sense if you are retired, work remotely, or are relocating anyway. A retiree on a fixed income in a no-income-tax state avoids tax on Social Security and pension income (in most cases). A remote worker earning the same salary in Texas versus New York saves real money. But a wage earner with a local job, a mortgage, and school-age children usually finds that the disruption costs more than the tax savings.

Frequently Asked Questions

Does New Hampshire really have no income tax?

New Hampshire has no tax on wages, but it does tax investment income (interest, dividends, capital gains) at 5%. If you earn wages, you pay no state income tax. If you live on investment income, you pay 5% on that income. This makes New Hampshire attractive to wage earners but less so to retirees living on investments.

Is Alaska really tax-free?

Alaska has no state income tax and no statewide sales tax, but most cities and boroughs charge local sales tax (1% to 7.5%). Alaska also has no property tax at the state level, though some municipalities charge it. The cost of living in Alaska is high due to shipping and geography, so the tax savings are often offset by higher prices for goods and services.

What about taxes on retirement income?

This varies by state. Some no-income-tax states (Florida, Texas, Nevada) do not tax any retirement income. Others (Tennessee, South Dakota) tax only investment income, not pensions or Social Security. New Hampshire taxes investment income but not wages or pensions. If you are retired, check the specific state's rules on pensions, Social Security, and investment income before moving.

Can I reduce my taxes by moving to a different state?

You can reduce your state taxes, but whether it saves money overall depends on housing costs, sales tax, property tax, and moving expenses. Calculate your total tax burden in each state, then subtract moving costs and any difference in housing prices. If the savings exceed $2,000 to $3,000 per year, and you plan to stay for at least five years, the move may make financial sense.

Do I have to move to a state to benefit from its tax laws?

You must establish residency in a state to benefit from its tax laws. Residency is determined by where you spend most of your time, where you register to vote, where you have a driver's license, and where you own property. You cannot claim residency in a state where you do not actually live. If you move for tax reasons, you need to move genuinely, not just claim residency on paper.