Some states have high sales taxes and property taxes but no income taxes. Other states have no sales taxes but high income taxes. Overall, taxes at the state and local levels can dramatically impact the cost of living for consumers. These lists of state taxes can give you an idea of how the highest- and lowest-taxed states rank.
Find out where your state stands and check into those you might be considering moving to for one reason or another, like when it's time to retire.
State Sales Taxes
Sales taxes are the percentage you pay over and above a sales price when you purchase certain items. Most states rely heavily on these taxes to meet their fiscal needs.
Municipalities and counties sometimes have their own sales taxes in addition to those charged at the state level. The Tax Foundation, a leading source for tax information, provides comprehensive annual rankings based on various taxes overall.
According to the Tax Foundation, the five states with the highest combined sales taxes at the state and local levels as of 2021 are:
- Tennessee: 9.55%
- Louisiana: 9.52%
- Arkansas: 9.51%
- Washington: 9.23%
- Alabama: 9.22%
The states with the lowest combined sales taxes are:
- Alaska: 1.76%
- Hawaii: 4.44%
- Wyoming: 5.33%
- Wisconsin: 5.43%
- Maine: 5.5%
Four states have no sales tax at all: Delaware, Montana, New Hampshire, and Oregon.
State Income Taxes
Eight states impose no tax on residents' incomes as of 2021: Alaska, Florida, Nevada, South Dakota, Texas, Tennessee, Washington, and Wyoming. New Hampshire taxes only interest and dividend income—you can keep your earned income tax-free—and Tennessee repealed even this tax, effective Jan. 1, 2021.
At the other end of the scale are states with walloping tax rates at the highest income levels.
The top five states by income tax rate in 2021 are:
- California: up to 13.3%
- Hawaii: up to 11%
- New Jersey: up to 10.75%
- Oregon: up to 9.90%
- Minnesota: up to 9.85%
You'll note that none of these states also make the list for the highest state and local sales taxes, so residents do receive a little bit of a break there.
The bottom five states by income tax rate in 2020 were:
- North Dakota: 2.9% and lower
- Pennsylvania: 3.07% (flat)
- Indiana: 3.23% (flat)
- Michigan: 4.25% (flat)
- Colorado: 4.55% (flat)
Property Tax Rates
Property taxes are generally imposed at the local level. New Jersey municipalities are known for having the highest property taxes at a median rate of 1.89% as of 2021, and Louisiana has the lowest at 0.18%. Half of all property taxes are higher than the median, and half are lower.
Trailing New Jersey but still making the top five states for the most burdensome property taxes are:
- New Hampshire: 1.86%
- Texas: 1.81%
- Nebraska: 1.76%
- Wisconsin: 1.76%
At the other end of the spectrum, the four states joining Louisiana for the five lowest median property tax rates are:
- Hawaii: 0.26%
- Alabama: 0.33%
- Delaware: 0.43%
- West Virginia: 0.49%
Note that Alabama offsets its ranking here with its high sales taxes. Also note that Washington, D.C., though not a state, falls near the bottom of the list with a 0.46% property tax rate.
Putting It All Together
These lists only report the highest and lowest states in each category. Consumers will find that the majority of states charge income taxes along with hefty additional state and local taxes. Looking at each of these categories comprehensively for your individual situation can keep you informed regarding your own goals, and it might greatly help to potentially influence your choice of the state in which you want to live, particularly in retirement.
Property taxes wouldn't be a consideration if you plan to rent rather than own your home, while income tax—or the lack of one—would be more of a consideration for high-income earners.
Other Things to Think About
Combined taxes are tracked by the U.S. Census Bureau, which generally looks at taxes as a percentage of revenue. As of the fourth quarter of 2020, combined tax revenues for property, sales and gross receipts, and income taxes amounted to $426.4 billion across the U.S.
Each state has a unique mix of taxes that affects both residents and nonresidents. This makes creating a comprehensive ranking of overall tax burdens an even more difficult undertaking and one that can be looked at in several ways. The U.S. Census Bureau’s quarterly data report helps provide insight on total tax revenue, which takes into account taxes paid by residents and nonresidents.
It can be important to consider taxes as they contribute to state revenue and budgets as well as those that affect local consumers.