Where You'll Pay the Most in State and Local Taxes
Some states have high sales taxes and property taxes but no income taxes. Other states have no sales taxes but high income taxes. So how do you compare the cost of living in each from a tax perspective? How do you figure out where you’ll pay the least overall tax?
These lists of state taxes can give you an idea of how the highest and lowest states rank, and the Tax Foundation came up with a comprehensive list based on combined taxes several years ago.
State Sales Taxes
Sales taxes are the percentage you pay over and above sales price when you purchase certain items. Most states rely heavily on these taxes to make their fiscal ends meet. Keep in mind, too, that municipalities and counties sometimes have their own sales taxes in addition to those charged at the state level.
The states with the highest combined sales taxes at state and local levels as of 2017 are Louisiana (9.98 percent), Tennessee (9.46 percent), Arkansas (9.3 percent), Alabama (9.01 percent), and Washington (8.92 percent).
The states with the lowest combined sales taxes include Oregon, Delaware, Montana, and New Hampshire, none of which impose any sales taxes at all. Other than these sales-tax-free states, Alaska imposes only a 1.78 percent local sales tax in some areas.
State Income Taxes
Seven states decline to tax residents' incomes as of 2017: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Additionally, New Hampshire and Tennessee tax only interest and dividend income—you can keep your earned income tax free.
At the other end of the scale are states with walloping tax rates at the highest income levels:
- California: 13.3 percent
- Oregon: 9.9 percent
- Minnesota: 9.85 percent
- Iowa: 8.98 percent
- New Jersey: 8.97 percent
- Vermont: 8.95 percent
- District of Columbia: 8.95 percent
- New York: 8.82 percent
- Hawaii: 8.25 percent
- Wisconsin: 7.65 percent
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.
Property Tax Rates
Property taxes are generally imposed at the local level. New Jersey municipalities are known for having the highest property taxes, and Louisiana has the lowest as of 2017.
Putting It All Together
These lists don't overlap, and they only report the highest and lowest states in each category. But plenty of states levy both income taxes and state and local sales taxes and the Tax Foundation took the time to calculate these numbers to come up with a list of the highest taxed states overall in 2012. Unfortunately, it was a major challenge and the Tax Foundation has not released a similar comprehensive report since then.
They did find in 2012 that the same states on that list had also popped up on their 2005 list, indicating that there's not historically a lot of change in these tax rates. One can presume that they're still pretty hefty in these states as of 2017:
- New York: 12.7 percent
- Connecticut: 12.6 percent
- New Jersey: 12.2 percent
- Illinois: 11 percent
- California: 11 percent
- Wisconsin: 11 percent
Some Other Things to Think About
Each state has a unique mix of taxes that affect both residents and non-residents. This makes creating a comprehensive ranking of overall tax burdens a difficult undertaking and one that can be looked at in several ways.
The different ways of estimating tax burdens has actually ignited a feud between the Tax Foundation and the Census Bureau, who publishes its own state by state list. The Tax Foundation has criticized the Census Bureau's list for not including local taxes and for only looking at the amount of taxes collected by the states themselves, which could be paid by either residents or non-residents such as tourists. The takes state and local taxes, including property taxes, into account.
They then rank the states based on how much residents pay in state and local taxes as a percentage of per capita income.
The Census Bureau has criticized the Tax Foundation’s list because the Tax Foundation frequently changes their methodology. Additionally, if a Connecticut resident works in New York and pays taxes to New York, those tax dollars are counted in Connecticut’s tax burden because the taxes were paid by a Connecticut resident, and this may not be inherently fair.
This is obviously not an exact science, but just an estimation of state and local tax burdens. If you're considering relocating, it might be worthwhile to look at both lists and the methods used to compare the states and draw your own conclusions.