Tax Time: State Tax Rates

When I retired, I decided to leave the cold winter weather of the Midwest, particularly the "hawk" of Chicago's bitter cold. I thought I'd save money by moving to a state with no state income tax.  Little did I know how naive I was. I knew so little and did no research, which is just about abnormal for me.  But, as time passe, I learned about state taxes little by little. Here's some of the major bits of information I accumulated over time.


Each state has its own type of taxes. For instance, most states charge an income tax and sales tax but the rates are different. The five states with the highest overall state tax rates are: Maine, New York, Hawaii, Rhode Island and Wisconsin. (The District of Columbia, Washington D.C., actually has the highest local tax at 12.2 percent, but it is not technically a state). The five states with the lowest overall state taxes are: Alaska, New Hampshire, Delaware, Tennessee and Alabama.

State Income Tax

All but seven states tax the earned income of full and part time workers who reside or work there. Those seven states are: Alaska, Florida, Nevada, South Dakota, Texas and Washington. States that do not have an income tax often make up for the lost revenue in higher sales taxes--although Alaska does not have an income or a sales tax. The District of Columbia and 27 states exclude social security benefits from income tax. New Hampshire and Tennessee apply income tax only to interest and dividend income

Although the common name for this tax is sales tax; the correct term is sales and use tax because transactions for goods rented or leased can also be subject to this tax. What is exempt from sales tax (such as food, prescription drugs and sometimes clothing) varies from state to state. All states except Alaska, Delaware, Montana, New Hampshire and Oregon levy a sales tax. The state with the highest sales tax rates is California, with 7.25 percent. Indiana, Mississippi, New Jersey, Rhode Island and Tennessee all levy 7 percent sales tax.

State Property Tax
Virtually every state levies property taxes, so it’s nearly impossible to escape that flavor of tax burden. Because real estate values vary widely from market to market and property taxes are based upon a property’s value, taxpayers who live in a state with low property taxes and high real estate values may face a larger tax burden than those who live in a state with high property taxes and low real estate values. The states with the lowest median real-estate taxes are largely in the South (Alabama, South Carolina, Georgia) and Appalachia (West Virginia) and Idaho.

Per Capita Tax Burden
The easiest way to normalize different types of taxes across a state's population is to assess its per-capita taxpayer burden, which divides the total amount of state taxes collected among the number of residents of the state. This measure provides only bare details about those with median incomes and average spending habits, so again your tax burden will vary by your personal situation. Six states place an average tax burden of less than $1600: Texas, South Dakota, Colorado, new Hampshire, Alabama, Missouri-with Texas boasting the lowest per-capita burden, with the average resident paying $1,368 to the state coffers.

Related Article: Tax Time: What's Your Tax Bracket