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State Tax Rate Comparison: Which States Have the Lowest Taxes?
Updated on 02/24/2023
Almost everyone who lives in the United States pays some form of taxes, but did you know that the amount of taxes you pay often depends on the state you live in? States have many different types of taxes that residents are expected to pay, but these taxes vary widely. Some states don’t even impose certain types of taxes, like income or sales tax.
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If you’re interested in moving to a state with overall low tax rates, or if you’re just curious how your state stacks up, keep reading to learn about the states that have the lowest tax rates.
Why do States Charge State Taxes?
The federal government grants states the authority to impose various taxes on its residents, so long as the tax does not impede on the U.S. Constitution or the state’s specific laws. From income and sales tax to property and real estate tax, many people consider the tax rate to play a big role in choosing where to live.
These taxes are used in a variety of ways, such as funding:
- The state government
- Infrastructure
- Public transit systems
- Law enforcement
- Other public services
The Income Tax-Free States
As of 2023, there are nine states that do not generally impose a state income tax. These are:
- Alaska
- Florida
- Nevada
- New Hampshire
- The state does not have an income tax, but it does tax people who earn interest and dividends
- South Dakota
- Tennessee
- Texas
- Washington
- High earners might incur a capital gains tax
- Wyoming
What States Have the Lowest Income Tax?
Among the states that do impose a state income tax, there are a handful with considerably low rates. It’s worth noting that states frequently change tax rates to reflect differences in cost of living or to adjust for inflation. Likewise, some states may have a flat tax rate while others tax you based on your income.
In 2023, the 10 states with the lowest average state tax rates are listed below:
- Louisiana
- Hawaii
- Alabama
- Delaware
- West Virginia
- South Carolina
- Arkansas
- Mississippi
- New Mexico
- District of Columbia
Sales Tax
Sales tax is another significant contributor to the amount of taxes you can expect to pay within a state. This tax is levied on retail sales of goods and services, with a few exceptions. For example, most states do not impose sales taxes on grocery items.
In general, there are five states that do not impose sales tax. For states with an asterisk (*), see the note below:
- Alaska*
- Delaware*
- Montana
- New Hampshire
- Oregon
*Note: Alaska itself does not impose a sales tax, but you may encounter local sales taxes of up to 7.5%. However, the average sales tax throughout the state is around 1.76%.
While Delaware does not impose sales taxes to customers, it does charge a gross receipts tax on businesses, which can therefore influence the costs of goods and services.
How Do States Make Money Without Sales Tax?
Sales tax isn’t the only way that states generate revenue through taxes. However, states that don’t charge a state sales tax generally offset those low taxes with higher taxes elsewhere. For example, the state may impose higher taxes for business, excise, or income tax.
What is the Difference Between Sales and Excise Taxes?
While sales and excise taxes are both considered consumption taxes, excise taxes refer to specific types of goods. These goods include products such as gasoline, tobacco, and alcohol. Sales tax, on the other hand, refers to retail goods in general.
When it comes to gas excise taxes, Alaska, Mississippi, New Mexico, Arizona, and Missouri have the lowest tax rates while New Jersey, Hawaii, Pennsylvania, Illinois, and California have the highest.
For tobacco tax rates, Missouri, Georgia, North Dakota, North Carolina, Idaho, and South Carolina come in at the lowest while Maryland, Rhode Island, Connecticut, New York, and the District of Columbia impose the highest tobacco excise taxes.
States With the Lowest Real Estate Tax Rate
Unlike many other state taxes, real estate taxes fall under local jurisdiction, so rates can vary widely within a given state. However, the following states have the lowest average property taxes across the state:
- Hawaii
- Alabama
- Colorado
- Louisiana
- South Carolina
- Delaware
- Nevada
- Utah
- District of Columbia
- West Virginia
That being said, three parishes within Louisiana have the lowest property taxes across the nation: Assumption Parish, Vernon Parish, and Grant Parish.
On the other side, three counties within New Jersey have the highest property taxes in the nation: Essex County, Passaic County, and Union County.
States With Taxes on Social Security Benefits
Most states don’t charge state taxes on Social Security benefits. In fact, 38 states and Washington D.C., do not impose these taxes on Social Security benefits. Here are the states that do impose taxes on Social Security benefits:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Vermont
- West Virginia
States That Don’t Tax Pensions
If you’re retiring soon, you may be concerned about whether your pension will be taxed. Unfortunately, most states impose at least some taxes on pensions. However, there are a handful of states that don’t, which are listed below:
- Alaska
- Florida
- Illinois
- Mississippi
- Nevada
- New Hampshire
- Pennsylvania
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
The Overall Lowest Tax Rates Across States
With so many types of taxes to consider, you may be wondering about the states that have the lowest tax rates across the board. If you’re looking for our overall picks, here are the 5 states with the lowest overall tax rates.
- Wyoming: Not only does Wyoming have no state income tax, but it also imposes a low state and local sales tax rate along with low property tax rates. This makes Wyoming a great place to live tax-wise, especially for homeowners and middle-class families.
- Nevada: Nevada does not have any state income tax and it ranks fourth lowest for state property taxes. Nevada’s sales tax rate is relatively high, but the state still comes out ahead due to other low state tax rates.
- Florida: Florida is a favorite state among snowbirds solely based on its weather. It’s another state with no income tax, and its lower sales taxes and average property tax rates are also favorable.
- Alaska: Alaska is one of the few states that do not impose state income taxes, and it has one of the lowest sales tax rates in the U.S., since only local sales taxes are imposed. Additionally, property taxes are only slightly above the national average.
- Tennessee: This state has no income tax, and property taxes are very reasonable. However, its sales tax rate is not very attractive; it has the second-highest sales tax in the U.S.
