How Does Your State Rank
As weve already mentioned, Alaskas combined tax rate is the countrys lowest at just 1.23%. Well break down each area in subsequent sections, but Alaska has no state income tax and no statewide sales tax, though some counties in the state do charge sales taxes. The states gas tax rate is the lowest in the country, and its property tax rate is near the middle of the pack.
On the flip side, Californias combined rate of 8.61% is the nations highest, putting the Golden State more than a percentage point ahead of Minnesota. California has the highest median income tax rate, the 10th-highest state sales tax rate and the fifth-highest gas tax rate.
Heres a look at how every state performed in our full ranking:
Among the states with the lowest combined tax rates, half are in the West, and Florida is the only Southern state among those with the 10 lowest overall rates. Two of the three most populous states have among the five highest rates in the nation.
North Carolina and South Carolina have almost identical rates , and four states have both one of the 10 highest tax rates and 10 highest rates of poverty, though, notably, the District of Columbia is the only one of the bunch with a very high income tax rate. That could indicate that the burden of state-level taxes in some places is being borne by people who can little afford it.
Sales Tax Takers And Leavers
If you’re a consumer, you’ll want to consider that all but four states Oregon, New Hampshire, Montana and Delaware rely on sales tax for revenue.
Of these, Alaska also has no income tax, thanks to the severance tax it levies on oil and natural gas production. 37 states, including Alaska and Montana, allow local municipalities to impose a sales tax, which can add up. Lake Providence, Louisiana has the dubious distinction of most expensive sales tax city in the country in 2021, with a combined state and city rate of 11.45%.
Factoring the combination of state and average local sales tax, the top five highest total sales tax states as ranked by the Tax Foundation for 2021 are:
- Tennessee 9.55%
Residents of these states pay the least in sales taxes overall:
- New Hampshire 0%
States With The Lowest Property Taxes In 2022
When buying or selling property in a new state, its wise to consider how property taxes might fluctuate from one state to another. Especially for those looking to invest in multiple properties, understanding the states with the lowest property taxes can help optimize taxpayer obligations and allow investors to further expand their assets. In this article, well explore which of these states feature the most attractive property tax rates, which states have the highest property tax, as well as how those looking to purchase real estate can calculate these taxes.
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Sales Tax Bases: The Other Half Of The Equation
This report ranks states based on tax rates and does not account for differences in tax bases . States can vary greatly in this regard. For instance, most states exempt groceries from the sales tax, others tax groceries at a limited rate, and still others tax groceries at the same rate as all other products. Some states exempt clothing or tax it at a reduced rate.
Tax experts generally recommend that sales taxes apply to all final retail sales of goods and services but not intermediate business-to-business transactions in the production chain. These recommendations would result in a tax system that is not only broad-based but also right-sized, applying once and only once to each product the market produces. Despite agreement in theory, the application of most state sales taxes is far from this ideal.
Hawaii has the broadest sales tax in the United States, but it taxes many products multiple times and, by one estimate, ultimately taxes 119 percent of the states personal income. This base is far wider than the national median, where the sales tax applies to 36 percent of personal income.
Exemptions And Collecting Sales Tax
Only seven states charge sales tax on food purchases. However, all seven states offer reductions in the amount of tax charged rather than exemptions. Sales tax is often charged at the point of purchase or sale. Service providers or merchants have the responsibility of collecting sales tax from buyers and submitting it to the state. The businesses are therefore required to be registered with the state agency for permits. The service providers within a state have an obligation to maintain a record of all sales tax collected and to make periodic payments to the government. A penalty including fines and the withdrawal of business permits is often imposed on service providers who fail to file tax returns or those who do so after the stipulated time.
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Check Eligibility For Property Tax Exemption
There are certain property tax exemptions available at the state and local level, depending on where you live. Thy are typically reserved for seniors, veterans, active-duty service members, and individuals with disabilities. If any of these apply to you, you can apply for an exemption with your county. Note that for some of these categories, there may be additional income requirements as well. In some situations, homeowners may be eligible for a complete exemption from property taxes.
Total Tax Burden: 819%
The Lone Star State loathes personal income taxes so much that it decided to forbid them in the states 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 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.
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Property Taxes And Senior Property Tax Relief Programs
Homeownership is a good way for seniors to lock in their housing costs for the long run so that they dont have to worry about shifts in the housing or rental market. In some states, however, high property taxes or property taxes that can grow rapidly from one year to the next serve to discourage retirees from owning a home. Property tax rates and rules are drastically different between states.
For example, New Jersey homeowners typically spend around $8,400 annually in property taxes. In Alabama, most homeowners spend much less, at right around $600 a year.
One way many states help retirees limit the burden of property taxes is by offering exemptions or circuit breakers. The terminology varies by state, but exemptions typically allow seniors to protect part of their homes value from property taxes. They often have income limits, so households earning more than a certain amount are not eligible.
Circuit breakers can have the same effect as an exemption. Sometimes, they also limit the amount property taxes can increase from one year to the next for seniors.
Property tax deferrals are another helpful form of property tax relief for seniors. Deferrals allow seniors and retirees to put off payment of some or all of their property taxes until a later time. It is typical for deferred property tax payments to be subtracted from the revenue of an eventual home sale, meaning they never come out of a seniors income.
What States Have The Most And Least Expensive Property Taxes
Many people do not realize how much property taxes vary in each state. Some states have property taxes that are ten times the taxes in other states. If you live in a state your entire life you may be used to it but if you move around a lot or invest in real estate in different states it is important to understand how much property taxes are and how much they can impact commercial or residential real estate ownership. We put together a list of the property taxes for every state in the US including the states with the highest and lowest taxes. These can change and some states figure their taxes differently than others.
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Local Sales Tax Rates
The five states with the highest average local sales tax rates are Alabama , Louisiana , Colorado , New York , and Oklahoma .
In an unusually quiet year on the sales tax front, no states saw ranking shifts due to local rate changes since January. West Virginias towns of Alderson and Ansted adopted local option sales taxes of 1 percent beginning on July 1, but this was not enough to change the states ranking. Robust receipts and ample federal pandemic relief funds have likely reduced pressure on localities to generate additional tax revenue.
It must be noted that some cities in New Jersey are in Urban Enterprise Zones, where qualifying sellers may collect and remit at half the 6.625 percent statewide sales tax rate , a policy designed to help local retailers compete with neighboring Delaware, which forgoes a sales tax. We represent this anomaly as a negative 0.03 percent statewide average local rate , and the combined rate reflects this subtraction. Despite the slightly favorable impact on the overall rate, this lower rate represents an implicit acknowledgment by New Jersey officials that their 6.625 percent statewide rate is uncompetitive with neighboring Delaware, which has no sales tax.
Total Tax Burden: 684%
New Hampshire does not tax earned income but does tax dividends and interest. New Hampshires 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 Hampshires 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.
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What Are Tax Burdens
In this study, we define a states tax burden as state and local taxes paid by a states residents divided by that states share of net national product. This studys contribution to our understanding of true tax burdens is its focus on the fact that each of us not only pays state and local taxes to our own places of residence, but also to the governments of states and localities in which we do not live.
This tax shifting across state borders arises from several factors, including our movement across state lines during work and leisure time and the interconnectedness of the national economy. The largest driver of this phenomenon, however, is the reality that the ultimate incidence of a tax frequently falls on entities other than those that write the check to the government.
Property Taxes Are Not The Only Taxes
This list gives you an idea of what property taxes will be in each state but they are not the only taxes! A lot of people are surprised to see how low California property taxes are because they always hear that California has crazy high taxes. California has high income taxes but not high property taxes. Property taxes are assessed on real estate and income taxes are assessed on the money you earn. Texas on the other hand has high property taxes but no income tax.
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States With The Lowest Taxes And The Highest Taxes
Where you live can help or hinder your ability to make ends meet. A myriad of taxesproperty, license, state and local sales, property, inheritance, estate and excise taxes on gasolineeat away at your disposable income. Weighing the tax landscape against your financial picture lets you stretch your dollars. Here’s a roundup of the highest and lowest taxes by state.
“Location, location, location” is a focus that applies to more than just housing. Where you live can help or hinder your ability to make ends meet.
A myriad of taxes such as property, license, state and local sales, inheritance, estate, and excise taxes can eat away at your income. Often, the biggest tax ticket citizens face after paying the Internal Revenue Service is the one their state presents. As a result, identifying the states with the lowest taxes might be a smart financial move to make.
Currently, 41 states and the District of Columbia levy a personal income tax. Weighing the tax landscape against your financial picture could help you stretch your dollars further.
Combined State And Local Sales Tax Rates
Five states do not have statewide sales taxes: Alaska, Delaware, Montana, New Hampshire, and Oregon. Of these, Alaska allows localities to charge local sales taxes.
The five states with the highest average combined state and local sales tax rates are Louisiana , Tennessee , Arkansas , Washington , and Alabama . The five states with the lowest average combined rates are Alaska , Hawaii , Wyoming , Wisconsin , and Maine .
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What Does It Mean To Live In A State With No Income Tax
At the most basic level, living in a state with no personal income tax means that youll get to keep a little bit more of your paycheck. And if youre currently living in a state with high personal income tax rates like California , it can seem tempting to pack your bags and book a one-way ticket to Washington. However, moving to a state without an income tax does not mean that you will be excused from paying other taxes. If you meet the income qualifications for filing a federal return, youll still be expected to do so by the tax-filing deadline.
States With The Lowest Personal Income Tax Rates In 2022
Eight states had no income tax at all in 2022:
You pay 10% on the first $10,000 you make. Then 15% on any earnings you make between $10,001 and $50,000, and 20% on anything beyond that.
So how much do you actually pay in taxes in a marginal tax system? Heres how you estimate it:
First, break out how much money you make in each category and then multiply the amount by the tax rate in decimal form. So in our above example, the taxes owed on a marginal basis would look like this:
+ + = $9,000
If your entire income were to be solely taxed at the highest rate, then someone making $60,000 in Imagination would owe $12,000 in taxes $3,000 more than they would using the marginal system.
Because of the marginal tax rates, its important to know the tax brackets along with the income tax rates. Although California has the highest possible income tax rate, Oregons top tax rate kicks in at a much lower income level compared to Californias. That means a person could potentially end up paying less state income tax in California.
For example, single filers in California making between $61,214 and $312,686 cap out at an income tax rate of 9.3%. Meanwhile in Oregon, single filers making above $9,200 have an income tax rate of 9.9%.
One thing to note: Income can be taxed at both the federal and state level. Even if a state doesnt have a personal income tax, an individual may still owe money on their income to the federal government.
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Cities With The Highest Property Taxes
Cities also have some jurisdiction over property taxes, creating even more variability in property tax rates across the country. Many New Jersey cities are known for higher property tax rates, but certain Illinois localities are rising as well. According to research provided by Roofstock, here are a few cities with the highest property taxes in the US:
Elizabeth, New Jersey: 3.18%
West & Southeast: .66%
State & Local Tax Breakdown
All effective tax rates shown below were calculated as a percentage of the mean third quintile U.S. income of $63,218 and based on the characteristics of the Median U.S. Household*.
*Assumes Median U.S. Household has an income equal to $63,218 owns a home valued at $217,500 owns a car valued at $25,295 and spends annually an amount equal to the spending of a household earning the median U.S. income.
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