Everybody wants a lower tax bill. One way to accomplish that might be to live in a state with no income tax. At present, seven states—Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming—levy no state income tax at all. Washington state levies an income tax on investment income and capital gains, but it is only for certain high earners.
Though Tennessee used to tax investment and interest income, the Hall income tax was fully repealed as of Jan. 1, 2021. Elsewhere, New Hampshire currently taxes investment and interest income but is set to phase out those taxes starting in 2023. That will bring the number of states with no income tax to nine by 2027.
- Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming do not levy state income taxes, while New Hampshire doesn’t tax earned wages.
- States with no income tax often make up the lost revenue with other taxes or reduced services.
- A state’s total tax burden, which measures the percent of income paid in state and local taxes, could be a more accurate measure of its affordability than its income tax rate alone.
- Other factors—including healthcare, cost of living, and job opportunities—are also important in determining how expensive a state is.
- Alaska had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in.
Before you pull up stakes and hire a moving company to take everything you own to one of these enlightened lands, you might want to consider other factors, including:
- Sales, excise, and property taxes
- The impact of lower taxes on a state’s ability to invest in social services, such as infrastructure, education, and healthcare
States With No Income Tax
The table below illustrates the differences among states with no income tax. The first two columns show the state’s total tax burden (state income taxes + sales and excise taxes + property taxes) as a percentage of personal income followed by the rank that the state holds (best to worst) among all 50 states.
The third column shows the state’s affordability ranking, which combines both the cost of housing and cost of living, and the last column includes the state’s rank on the U.S. News & World Report “Best States to Live In” list.
These figures are as of the most recent reports: 2021 for overall tax burden, 2020 and 2019 for affordability, and 2021 for “Best States to Live In.”
|Comparison of States With No Income Tax|
|No-Tax State||Total Tax Burden (% of income)||Total Tax Burden Rank (1=lowest)||Affordability (1=best)||Best State to Live in (1=best)|
Total Tax Burden: 5.10%
Alaska has no state income or sales tax. The total state and local tax burden on Alaskans, including income, property, sales, and excise taxes, is just 5.10% of personal income, the lowest of all 50 states.
All residents of Alaska receive an annual payment from the Alaska Permanent Fund Corp. made up of revenue and investment earnings from mineral lease rentals and royalties. The per citizen dividend payment for 2021 was $1,114.
The cost of living in Alaska is high, though, mostly due to the state’s remote location. Alaska also levies the second-highest beer tax of any state in the union at $1.07 per gallon, bested only by Tennessee. The state ranks 47 out of 50 in affordability and 45 out of 50 on the U.S. News & World Report list of “Best States to Live In.”
Alaska has one of the highest and fastest-rising healthcare costs of any state in the U.S. That said, at $11,064 per capita in 2014—the most recent year the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary reported statistics—it also spent the most on healthcare, excluding the District of Columbia.
At $18,394 per pupil, it also spent the most on education of any state in the Western U.S. in 2019. In 2017, Alaska’s infrastructure received a grade of C- from the American Society of Civil Engineers (ASCE).
Total Tax Burden: 6.97%
This popular snowbird state features warm temperatures and a large population of retirees. Sales and excise taxes in Florida are above the national average, but the total tax burden is just 6.97%—the sixth-lowest in the country.
Florida ranks 31st in affordability due to its higher-than-average housing costs. Still, Florida came in at 10 on the U.S. News & World Report “Best States to Live In” list.
In 2019, Florida was one of the lowest states in terms of school system spending, at $9,645 per pupil. In 2021 the ASCE gave Florida a C grade for its infrastructure. Six years earlier, Florida received the same grade from the Education Law Center for the fairness of its state school funding distribution. In 2014, its healthcare spending per capita was $8,076, $31 more than the national average.
Total Tax Burden: 8.23%
Nevada relies heavily on revenue from high sales taxes on everything from groceries to clothes, sin taxes on alcohol and gambling, and taxes on casinos and hotels. This results in a state-imposed total tax burden of 8.23% of personal income for Nevadans, the second-highest on this list. However, it still ranks a very respectable 22 out of 50 when compared with all states.
That said, the high costs of living and housing put Nevada near the bottom (41) when it comes to affordability. The state ranks 37th on the U.S. News & World Report “Best States to Live In” list.
Nevada’s spending on education in 2019 was $9,344 per pupil, the fourth-lowest in the western region of the U.S. One year earlier, in 2018, the ASCE gave Nevada a grade of C for its infrastructure.
In addition to receiving an F grade from the Education Law Center in 2015, Nevada was also the worst state overall in terms of the fairness of its state school funding distribution. Nevada’s healthcare spending in 2014 was $6,714 per capita, the lowest on this list and the fourth-lowest nationally.
4. South Dakota
Total Tax Burden: 7.37%
Like many states with no income tax, South Dakota rakes in revenue through other forms of taxation, including taxes on cigarettes and alcohol. The home of the Lakota Sioux and the Black Hills has one of the highest sales tax rates in the country and above-average property tax rates. South Dakota’s position as home to several major companies in the credit card industry, in addition to higher property and sales tax rates, helps to keep the state’s residents free from income tax, according to reporting by The Atlantic.
South Dakotans pay just 7.37% of their personal income in taxes, according to WalletHub, ranking the state eighth in terms of the total tax burden. The state ranks 14th in affordability and 15th on the U.S. News & World Report “Best States” lists.
South Dakota spent $8,933 per capita on healthcare in 2014, the 14th highest in the nation. Although it spent more money on education, at $10,139 per pupil in 2019, it spent less than any other neighboring Midwestern state. Additionally, it received a grade of F for its school funding distribution.
South Dakota hasn’t received an official letter grade from the ASCE, though much of its infrastructure is notably deteriorated, with 17% of bridges rated structurally deficient and 90 dams considered to have high hazard potential.
Total Tax Burden: 8.19%
The Lone Star State loathes personal income taxes so much that it decided to forbid them in the state’s constitution. Still, because infrastructure and services must be paid for somehow, Texas relies on income from sales and excise taxes to foot the bill.
Sales tax can be as high as 8.25% in some jurisdictions. Property taxes are also higher than in most states, the net result of which is a total tax burden of 8.19% of personal income. Nevertheless, Texans’ overall tax bite is still one of the lowest in the U.S., with the state ranking 19th. Texas is average for affordability at 22nd in the nation, but it was ranked 31st by U.S. News & World Report on the “Best States to Live In” list.
Texas spent $9,827 per pupil on education in 2019, ranking it below average among the 17 Southern states, and it received a D grade for its school funding distribution in 2015. In 2021 the ASCE awarded it a grade of C for its infrastructure. Texas spent $6,998 per capita on healthcare in 2014, the seventh-lowest amount in the U.S.
One advantage of living in a no-tax state is that the $10,000 cap on state and local tax (SALT) deductions imposed by the Tax Cuts and Jobs Act will likely not have as great an impact as it does on residents of high-tax states, such as California and New York.
Total Tax Burden: 8.34%
Washington hosts a young population, with only 15.9% of its residents over age 65, and many major employers, thanks to the lack of state-mandated corporate income tax (note that high-income earners are subject to state capital gains tax). Residents do pay high sales and excise taxes, and gasoline is more expensive in Washington than in most other states. The state comes in at 26 out of 50, with a total tax burden of 8.34%.
Unusually higher-than-average living and housing costs hurt Washingtonians, putting the state at 44th in terms of affordability. For some residents that might not matter, however, because their state was ranked by U.S. News & World Report as the overall best state to live in once again for 2021.
Washington spent $7,913 per capita on healthcare in 2014, $132 below the national average. Conversely, at $14,223 per pupil, it spent more on education than most in 2019, though it received a C grade for its school funding distribution four years earlier. In 2019, Washington earned the same grade for its infrastructure from the ASCE.
Total Tax Burden: 6.14%
With an estimated six people per square mile, Wyoming is the second least densely populated state, bested only by Alaska, which has roughly one human being for every square mile. Citizens pay no personal or corporate state income taxes, no retirement income taxes, and enjoy low sales tax rates. The total tax burden—including property, income, sales, and excise taxes as a percentage of personal income—is 6.14%, ranking the state third lowest.
Like Alaska, Wyoming taxes natural resources, primarily oil, to make up for the lack of a personal income tax, according to reporting in the Cowboy State Daily. The state ranks an average 33rd in affordability and 35th on the U.S. News & World Report list of “Best States to Live In.”
In 2019, at $16,304 per pupil, Wyoming was one of the highest spenders on education in the western U.S., second only to Alaska. It also earned a grade of A for its school funding distribution in 2015, the best on this list.
Wyoming’s healthcare spending in 2014 was more moderate by comparison, at $8,320 per capita. Although Wyoming hasn’t received an official letter grade for its infrastructure yet, the ASCE found that 6.9% of its bridges are structurally deficient and 99 of its dams have a high hazard potential.
Total Tax Burden: 5.74%
Before 2016, Tennessee taxed income from investments, including most interest and dividends but not wages. Legislation passed in 2016 included a plan to lower taxes on unearned income by 1% per year until the tax was eliminated at the start of 2021. To make up for the shortfall, Tennessee levies high sales taxes and the highest beer tax of any state in the union at $1.29 per gallon.
With full implementation of the new legislation, Tennessee expects to attract retirees who depend heavily on investment income. The state’s total tax burden is 5.74%, the second-lowest in the nation. In the affordability category, Tennessee ranks 17th overall, and on the U.S. News & World Report “Best States to Live In” list, it ranks 29th.
In 2019, at $9,868 per pupil, Tennessee ranked just above Texas in terms of education spending in the southern U.S. It also did a better job of fairly distributing its school funding than the Lone Star State did, earning the Equality State a C in 2015.
At $7,372 per capita, Tennessee ranked 39th in terms of healthcare spending in 2014. The state hasn’t received an official letter grade for its infrastructure yet, although the ASCE did note that 4.4% of its bridges are structurally deficient and 276 of its dams have a high hazard potential.
9. New Hampshire
Total Tax Burden: 6.84%
New Hampshire does not tax earned income but does tax dividends and interest. New Hampshire’s Senate passed legislation to phase out the investment income tax by 1% per year over five years, with full implementation by 2027. The state has no state sales tax but does levy excise taxes, including taxes on alcohol, and its average property tax rate of 1.86% of property values is the third highest in the country.
Even so, New Hampshire’s total tax burden is just 6.84%, according to WalletHub, ranking the state fifth in the nation. The state ranks fourth on the U.S. News & World Report list of “Best States to Live In” and 38th in the nation for affordability.
Although New Hampshire spent more on education than any other state on this list at $17,462 per pupil in 2019, its outlay was among the lowest in the northeastern region of the U.S. Additionally, in 2015 it earned a grade of D from the Education Law Center for its school funding distribution.
New Hampshire received a marginally better grade of C- for its infrastructure in 2017. At $9,589 per capita in 2014, its healthcare spending is the ninth highest in the nation.
Which Are the Tax-Free States?
As of 2022, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners.
Why Do States Charge a State Tax?
Following the adoption of the U.S. Constitution, the federal government was granted the authority to impose taxes on its citizens. Each state also retained the right to impose what kind of tax it wanted, excluding any that are forbidden by the U.S. Constitution as well as its own state constitution. These states fund their governments through tax collection, fees, and licenses.
Which States Don’t Tax Retirement Distributions?
Twelve states do not tax retirement distributions. Illinois, Mississippi, and Pennsylvania don’t tax distributions from 401(k) plans, individual retirement accounts (IRAs), and pensions. The remaining nine states that don’t levy a state tax at all are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Alabama and Hawaii also don’t tax pensions but they do tax distributions from 401(k) plans and IRAs.
Which States Tax Social Security Benefits?
There are only 12 U.S. states that tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.
The Bottom Line
Despite the challenges no-tax states face, some seem to find a balance among low taxes, affordability, and providing a great place to live. Others struggle. One thing is clear: Low taxes alone do not provide a complete picture of the cost of living for any state.
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