Income taxes are also slightly higher than average at 2.58%, but excise taxes amount to just 1.25% of income. Of the nine states that don’t impose state income tax on wages — Tennessee and New Hampshire — they do collect tax on dividends and interest. We’ve all heard the adage, “Nothing is certain except death and taxes.” We all know that we have to pay taxes if we live in the United States, but did you know that some states have lower tax rates than others? For a median-income household, this  translates to $4,656 in annual tax burden. A lack of tax Nine of those states that don't tax retirement plan income simply have no state income taxes at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Some states impose inheritance taxes, taking a chunk out of your estate when it passes to your children. A household earning $62,000 would pay $3,441 in state taxes. As a total tax burden, that comes to 6.86%. But low state income tax, no sales tax, low car registration fees, many tax perks for seniors…you can quit paying your property tax at 62, and it will be paid later out of your estate. G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. If not, what’s kept you from doing it? That puts the state’s property taxes at the fourth lowest in the country. States with the lowest corporate income tax rates include North Carolina at 2.5 percent, North Dakota at 4.31 percent and Colorado at 4.63 percent. © 2021 Money Crashers, LLC. Have you thought about moving to a lower-tax state? The more you earn, the higher the percentage of your income that you pay. Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers.com receives compensation. The logic goes that taxing income is the most direct way to tax wealthier residents at higher rates, as opposed to property or sales taxes, which tend to be flat. Each state charges different rates for each tax type. So you can imagine, the states with the lowest and highest taxes have very different tax rates. Best States for Low Taxes: 50 States Ranked for Taxes, 2018. State income tax: None. Of course, not everyone loves the weather in Alaska. That’s enough money to cover the median family’s retirement savings — all of it. Alabama offers a coastline along the Gulf of Mexico and many charming small cities, such as Birmingham, Mobile, Montgomery, Huntsville, and Auburn. To determine the states with the highest and lowest property taxes, 24/7 Wall St. calculated the effective property tax rate — the total amount of property taxes paid annually as a … The lowest non-zero, state-level sales tax is in Colorado, which has a rate of 2.9 percent. Winters are harsh, but those looking for a modern “Wild West” feel won’t be disappointed by Montana’s wide tracts and endless skies. It may be impossible to calculate the true total, given how many taxes, fees, and fines are hidden. Other states that maintain a corporate tax rate at or below 5 percent include Arizona, Kentucky, Mississippi, South Carolina and Utah. Average Combined State and Local Sales Tax Rate: 7.05% … 3. The difference between Louisiana, the state with the lowest rate, and New Jersey, with the highest rate, is a significant 1.71 percentage points. 0. Common excise taxes include alcohol and fuel (more on these momentarily). That’s an annual tax savings of $4,880. Because sales tax rates are usually flat, many liberal economists argue against high sales tax rates in favor of higher income tax rates. State and local taxes add up to real money. Mississippi has the lowest cost out of living of all 50 states. 0. 0. Sales and gross receipt … Total taxes per capita: $11,028. You even risk double taxation if both states where you spend time decide to tax you as a resident. Combined, that puts Wyoming’s tax burden at 7.51%. Sales and excise taxes: 1.44% He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world. Whether you’re older and looking for the best states to retire in, or younger and looking to start a family in a more affordable state, taxes matter. On the other end of the spectrum is Tennessee, whose state sales tax is 9.55 percent — the highest in the U.S. But you can estimate the average tax burden in each state by combining the three largest taxes: income tax, property tax, and sales tax. Another not-so-obvious tax is gasoline tax, which is applied to suppliers and hidden from consumers. But of the three primary tax types, sales tax is the easiest to avoid and minimize. Property Taxes: Property taxes, in addition to property values — can be dramatically different depending on your location. For example, while the state of Washington’s citizens don’t pay income tax, they still end up spending over 8% of their annual income on sales and excise taxes. That comes to a 5.55% total tax burden. Those states are: When it comes to sales tax, five states do not have charge sales tax. One of the best analyses of state tax burden data is from WalletHub. For example, property tax in one state may be much lower but personal income tax may be much higher. Property tax falls under local, not state, jurisdiction. Effective Property Tax Rate: 0.53% Median Home Value: $157,800. Excise taxes are similar to sales taxes, but typically are imposed on specific goods. Average state tax burden: 5.1% And you pay them a hefty chunk of your annual income. A glut of oil jobs in recent years has boosted South Dakota’s economy and population, driving real estate development and growth. How much are you really paying in state taxes? Some states require you to pay capital gains taxes as well. But make no mistake: That tax passes through to you in the form of higher gas prices. Many states also impose “sin taxes” on tobacco, alcohol, marijuana, and gambling. But physically spending time there is not enough. If you’ve made the move, what was your experience? In fact, Alaska is the only state to charge no sales tax and no income tax at all, including on investment income. Additionally, seniors are allowed to claim a … Alaska... 2. If you’re thinking about moving to a new state, consider the taxes you will incur, then take a look at the 10 states with the lowest overall tax burdens. Compare relative tax rates across the U.S. based on the lowest, average, or highest tax brackets. Montana imposes no sales tax, helping to keep its total tax burden low. As a percentage of the average taxpayer’s income, the difference between the highest and lowest states’ tax burdens is striking. They have a government to run, after all. Take advantage of its abundance of nature with more than 90 state parks and less-expensive skiing than its more famous neighbor, Vermont. Sales and excise taxes: 1. The total state tax burden is 7.12% of income. It converts each state’s property and sales taxes to a percentage of the typical taxpayer’s income, enabling you to compare apples to apples by considering the total percentage of taxpayer income collected by each state. It’s one more reason to quit smoking. References to products, offers, and rates from third party sites often change. Montana is stunningly gorgeous in the summer. Other critics note that it penalizes property owners for improving local housing. MoneyCrashers.com does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. High-tax states aren’t letting outbound movers go easily, either. All told, that puts Montana’s tax burden at 7.27%. Incomes taxes: 0% For example, nearly half (44.3%) of the price of an average pack of cigarettes goes to taxes, according to the Tax Foundation. Seven states have no income tax and two only tax interest and dividends. Income taxes are also relatively low at 1.89%, but the state charges relatively high sales and excise taxes, averaging 4% of income. Not sure where you got your info but i have lived in ak my whole life. All this tax burden talk raises a practical question: Can you move your legal residency to a lower-tax state without having to live there full time? It can mean thousands of dollars per year. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors. Alabama has the third-lowest property taxes at 0.33%. Known for its flat agricultural land, Oklahoma offers a few medium-sized cities as well. That means the median taxpayer in Alaska only loses around $3,160 per year to state taxes. Geographically, it allows easy access to three major cities (Philadelphia, Baltimore, and Washington D.C.), and sits only around two hours from New York City. Property taxes: 3.66% That means a median household pays around $4,253 in combined property, income, and excise taxes. In the state with the lowest tax burden, Alaska, the average household can expect to lose an average of only 5.1% of their income to taxes. Still, the total tax burden remains relatively low due to low property tax rates and low income tax rates. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others. 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