Tax Study
Analysis of income, state, sales and property taxes reveals the most tax-friendly states for residents.
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State and local governments maintain roads, run schools and pay police, and they need to fund public functions and state infrastructure. For most Americans, this additional tax burden comes from a combination of state income taxes, state and local sales taxes, and local property taxes.
Every state handles these taxes a little differently, and which state you live in has a significant impact on your wallet. But while citizens have long since considered the cost of taxes when determining if and where to move, the debate has only intensified over the past year with the rise of remote working and the idea that you're not necessarily tied to the same location as your employer.
But which states are the most tax-optimized? To generate a ranking of the tax-friendliness of U.S. states, MoneyGeek analyzed tax costs across all 50 states to measure those with the lowest tax burden, considering sales, income, and property taxes.
Key Findings:- Illinois has the highest tax burden in the U.S., with an estimated tax amount of $13,894 for the hypothetical family.
- Wyoming only imposes approximately $3,279 for the same family, making it the top state in terms of tax-friendliness.
- 4 out of 5 of the most tax-friendly states saw population growth at or above the national average (Wyoming, Nevada, Florida and Tennessee).
- Illinois and Connecticut received a grade of E for being the least tax-friendly states in the nation. Illinois experienced a population decline, while Connecticut’s population grew by just 0.1% — lower than the national average of 0.2%.
- Two states that were not tax-friendly that did see higher-than-average population growth were Vermont and New Hampshire, pandemic relocation hotspots for city dwellers.
See How Your Annual Tax Bill Compares With Other States
MoneyGeek estimated the state taxes paid by a married couple making the median national income of $82,852, with one child, and who own their $349,400 home to assess each state's tax-friendliness.
Wyoming | A | $3,279 | 4.0% | 0.3% |
Nevada | A | $3,879 | 4.7% | 1.0% |
Alaska | A | $4,507 | 5.4% | 0.0% |
Florida | A | $4,632 | 5.6% | 1.0% |
Tennessee | A | $5,377 | 6.5% | 0.8% |
Washington | B | $5,414 | 6.5% | 0.3% |
North Dakota | B | $5,556 | 6.7% | -0.5% |
Arizona | B | $5,665 | 6.8% | 1.4% |
South Dakota | B | $5,938 | 7.2% | 0.9% |
Delaware | B | $6,074 | 7.3% | 1.2% |
Colorado | B | $6,210 | 7.5% | 0.5% |
Louisiana | B | $6,556 | 7.9% | -0.6% |
District of Columbia | B | $6,626 | 8.0% | -2.9% |
California | B | $6,628 | 8.0% | -0.7% |
Montana | B | $6,700 | 8.1% | 1.7% |
Alabama | B | $6,894 | 8.3% | 0.3% |
New Mexico | B | $6,921 | 8.4% | -0.1% |
Hawaii | B | $6,982 | 8.4% | -0.7% |
South Carolina | B | $7,147 | 8.6% | 1.2% |
Idaho | B | $7,198 | 8.7% | 2.9% |
Indiana | B | $7,258 | 8.8% | 0.3% |
Missouri | C | $7,639 | 9.2% | 0.2% |
North Carolina | C | $7,658 | 9.2% | 0.9% |
Utah | C | $7,783 | 9.4% | 1.7% |
West Virginia | C | $7,855 | 9.5% | -0.4% |
Mississippi | C | $8,025 | 9.7% | -0.2% |
Texas | C | $8,027 | 9.7% | 1.1% |
Virginia | C | $8,083 | 9.8% | 0.1% |
Kentucky | C | $8,169 | 9.9% | 0.1% |
Oklahoma | C | $8,228 | 9.9% | 0.6% |
Arkansas | C | $8,625 | 10.4% | 0.5% |
Maryland | C | $8,758 | 10.6% | -0.1% |
Minnesota | C | $8,888 | 10.7% | 0.0% |
Georgia | C | $8,972 | 10.8% | 0.7% |
Ohio | C | $8,999 | 10.9% | -0.1% |
Oregon | C | $9,298 | 11.2% | 0.1% |
Maine | C | $9,411 | 11.4% | 0.7% |
Pennsylvania | C | $9,542 | 11.5% | -0.2% |
Rhode Island | C | $9,617 | 11.6% | -0.1% |
Massachusetts | D | $9,771 | 11.8% | -0.5% |
Kansas | D | $10,166 | 12.3% | 0.0% |
Michigan | D | $10,239 | 12.4% | -0.2% |
Nebraska | D | $10,446 | 12.6% | 0.1% |
Vermont | D | $10,453 | 12.6% | 0.5% |
Wisconsin | D | $10,976 | 13.2% | 0.1% |
Iowa | D | $11,398 | 13.8% | 0.1% |
New York | D | $11,495 | 13.9% | -1.6% |
New Hampshire | D | $11,694 | 14.1% | 0.8% |
New Jersey | E | $11,872 | 14.3% | -0.1% |
Connecticut | E | $12,545 | 15.1% | 0.1% |
Illinois | E | $13,894 | 16.8% | -0.9% |
The federal government had limited authority to collect taxes until the Sixteenth Amendment was ratified in 1913. States were left to their own devices to fund the cost of government. As a result, each of the 50 states and the District of Columbia has its own unique tax scheme. Some states rely heavily on income taxes, while others depend on sales taxes. Some states aim to keep taxes as low as possible, and others seek to maximize revenue.
States With No Sales Tax
- New Hampshire
- Oregon
- Montana
- Delaware
States With No Income Tax
Seven states do not collect tax on personal income, and Tennessee is poised to join the list:
- Alaska
- Wyoming
- South Dakota
- Florida
- Texas
- Nevada
- Washington
States With the Lowest Effective Property Taxes
Analysis Shows Population Growth in Lower Tax States
For many, the pandemic has altered their perceptions about where they want to live and where they can live. Millions of city-weary residents aching for more space have moved since the start of the pandemic.
Analysis of state tax burden rates and the change in population from 2020 to 2021, as estimated by the U.S. Census Bureau shows a negative correlation. The lower the state and local tax burden, the higher the population growth in 2021.
Four of the five states with an A grade in tax friendliness had population growth at or above the national average.
Of the states with an E grade, two out of three had population declines in 2021. Of the nine states with a D grade, only two — New Hampshire and Vermont — had population growth higher than the national average.
The included expert insights section on this page has advice on how to manage moving and taxes.
Key Facts About Taxes
For a typical middle-class family, the difference between living in the highest-tax state in our rankings — Illinois — and the lowest — Wyoming — is nearly $10,000 a year. A breakdown of the state-by-state tax picture reveals:
- Illinois imposes the highest tax burden. A hypothetical middle-income family would pay $13,894 a year in state and local income, sales and property taxes.
- Wyoming collects the least. The same family with the same financial picture would spend just $3,279.
- Mississippi is in the middle of the pack. A typical family would pay $8,025 a year in state and local taxes.
You’re probably not going to pick up and move simply to avoid state and local taxes. There are simpler ways to cut your tax bill, like saving for retirement, calculating business expenses and taking advantage of education credits and deductions. But if you’re pondering a relocation for professional or personal reasons, taking tax implications into consideration could help you choose your next move.
Expert Insights: Moving and Taxes
Making the move to a different state is a big step, and from a tax perspective, it can get complicated. MoneyGeek interviewed several experts to elaborate on the unique tax issues that moving presents and what you may need to take into account if you're thinking about making a move across state lines. The views expressed are the opinions and insights of the individual contributors.
- What tax implications should someone consider if they are moving from one state to another? What records would they need to show, if any?
- What factors determine where your true home is?
- How does working remotely affect one’s taxes? Similarly, what if you work in one place but choose to live in another because you can now work from home? What happens if you choose to work remotely out of another state for a period of time?
- How can someone looking to optimize their taxes do so by moving states?
Francine Lipman
Professor of Law at University of Nevada Las Vegas (UNLV)
Edward Zelinsky
Morris and Annie Trachman Professor of Law
Sharon Ackerman
Director, State and Local Taxation at Anchin, Block & Anchin
John Bonk
Partner and State & Local Tax Leader, Marcum Accountants and Advisors
Jared Walczak
Vice President of State Projects, Tax Foundation
Henry Grzes
Henry Grzes, Lead Manager for Tax Practice & Ethics American Institute of CPAs
Ani Hovanessian
Partner and Chair of the New York Tax and Wealth Planning Group at Venable LLP
Daniel Lee
Senior Wealth Manager at Plancorp
Nancy Anderson
National Director of Wealth Planning & Trust Services, Calamos Wealth Management
Jeff Zhou
CEO & Co-Founder of Fig Loans
Kimberly S. Krieg, PhD, CPA
Assistant Professor of Accounting at the University of San Diego School of Business
Marcia Nally, CPA
Partner with Moore Colson CPAs and Advisors
Steven J. Weil, Ph.D.
President, Enrolled Agent and Licensed Community Association Manager at RMS Accounting
Vincenzo Villamena, CPA
CEO at Online Taxman
Craig Lawless
Principal, State and Local Tax, at The Bonadio Group
Christian J. Burgos, J.D., LL.M., CMI
Managing Principal at Friedman LLP State and Local Tax Practice
Mark McKnight
Associate Professor of Accounting at the University of Southern Indiana
Leanne Scott, JD, LL.M.
Tax Principal at Baker Newman Noyes
Thomas M. Spade, CPA
Instructor of Accounting, College of Charleston
Daniel Shaviro
Wayne Perry Professor of Taxation at NYU Law School
Vincent J. Cincotta
Tax Principal, CPA
Wilton Hyman
Professor of Law at New England
Susan Petracco
Vice President of Integrations at AccurateTax
Michael Eckstein
Enrolled Agent and Owner at Resting Business Face and Eckstein Tax Services
Edward Charles Randle, Ph.D., CPA
Assistant Professor of Accounting at Winthrop University
John Petosa
Professor of Practice at Syracuse University
Krystal Pino, CPA, PFS
Founder at Nomad Tax
Mitchell Novitsky
Director, Eisner Advisory Group LLC
Joshua Zimmelman
Managing Director of Westwood Tax & Consulting
Noel Dalmacio, CPA, CFP, M.S.
President at Dalmacio Accountancy Corp
Sam Motes, CPA
Tax Associate at Truepoint Wealth Counsel
Stan Veliotis, PhD, Attorney, CPA
Associate Professor and Chair of the Accounting & Tax Department at Fordham University's Gabelli School of Business
Robert Roper, CPA
Senior Tax Manager at Kroon & Mitchell
Dan Sudit
Partner at Crewe Advisors
Valrie Chambers
Associate Professor of Accounting at Stetson University
Karen McGrath
Assistant Professor of Finance at Bucknell University
Mark Koscinski, CPA, MBA, MST, D.Litt.
Assistant Professor of Accounting Practice at Moravian University in Bethlehem
Gunter Dufey
Professor Emeritus of Corporate Strategy and International Business at Ross School of Business, University of Michigan
Jeffry R. Haber, PH.D., CPA
Professor of Accounting at Iona University
Suchot Sunday
Entrepreneur & Business Coach
Nichole Dauenhauer
Associate Professor of Accounting at Lakeland Community College
Methodology
To calculate the least and most tax-friendly states, we researched income, sales and property tax rates by state. Using expenditure and income data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, we constructed a hypothetical family with one dependent, gross income of $82,852, and a home worth $349,400 (the median new home price at the time we conducted our research). We then estimated the state taxes this hypothetical family would pay in each state. We ranked the states based on the estimated total taxes and assigned letter grades from A to E based on the size of the tax payment.
About the Author
sources
- U.S. Census Bureau. "Median and Average Sales Prices of New Homes Sold in the United States." Accessed March 16, 2021.
- U.S. Bureau of Labor Statistics. "Consumer Expenditures – 2019." Accessed March 26, 2021.
- Tax Foundation. "State and Local Sales Tax Rates, 2020." Accessed March 26, 2021.
- Tax Foundation. "State Individual Income Tax Rates and Brackets for 2020." Accessed March 26, 2021.
- Tax Foundation. "Local Income Taxes in 2019." Accessed March 26, 2021.
- Tax Foundation. "Wireless Tax Burden Remains High." Accessed March 26, 2021.
- American Petroleum Institute. "State Excise and Other Taxes." Accessed March 26, 2021.
- U.S. Census Bureau. "Selected Housing Characteristics." Accessed March 26, 2021.