Author: Christy Bieber | February 20, 2019
Tax policy varies dramatically among the states
In addition to federal taxes, every state in the U.S. charges at least some taxes to its citizens. These taxes could include income tax, property tax, sales tax, and more.
The rules from one state to another vary dramatically -- so some states are considered pretty tax-friendly due to overall low taxes while others charge their residents a whole lot more.
Each year, the Tax Foundation ranks the states according to which are most and least friendly. The 2019 numbers are out, so you can find out here if your state is one of the top 10, or if where you live didn't quite make the cut. Our list starts at the No. 10 most tax-friendly state and moves up through No 1. -- so dig in and see where your state ranks.
Indiana has steadily moved up on the list of tax-friendly states thanks to a series of consistent tax reforms that took place between 2011 and 2016. These reforms aren't yet finished, as Indiana has scheduled corporate income tax reductions to take place through 2022.
Indiana is one of just two states on the top 10 list of tax-friendly states that actually imposes all major taxes including corporate and individual income tax as well as sales tax. Although Indiana charges all three taxes when most other tax-friendly states don't, it still makes the top 10 list because rates are low and taxes are applied on a broad basis.
Indiana's top individual income tax rate is just 3.23%, and the state collected just $975 in state and local individual income taxes per capita.
Nevada earned its place on the top 10 list in large part because the state charges no individual or corporate income tax, although it does charge a small payroll tax and a gross receipts tax.
Nevada does have a pretty high 8.14% combined state and local sales tax rate, but property tax rates are low at just .75% taxes paid as a percentage of owner-occupied housing value.
Nevada is able to keep most taxes low because it receives more than $1 billion in annual taxes and fees from the casino industry. Its high sales tax rate also means tourists contribute heavily to the state's coffers, which is a big boon to residents who benefit because this revenue allows other taxes to be so low.
Utah joins Indiana as the other state on the top 10 list that charges all three major taxes: corporate and individual income taxes as well as sales tax. Like Indiana, Utah is considered tax-friendly despite charging all these taxes since rates are low and its base is broad.
Also like Indiana, Utah has recently had some favorable tax reforms. The state reduced its corporate and individual income tax rates from 5% to 4.95% in anticipation of earning more revenue thanks to federal tax reform.
When Utah's rates were at 5%, the state collected $1,054 in state and local income tax collections per capita and the combined state and local tax burden for residents was 9.6%. Its property tax rate was pretty low, though, at just 0.65% taxes paid as a percentage of owner-occupied housing value.
Residents will benefit from the reduction in corporate and individual rates, both in the form of a lower personal tax burden and the potential for increased corporate growth and investment in local communities.
The biggest factor in Oregon's favor is its lack of a sales tax on most purchases, which helps the state earn its place on the top 10 list.
Oregon does lose some points though because the state has both an income tax and a payroll tax unrelated to unemployment insurance. Oregon's top individual income tax rate is a whopping 9.9%, which is considerably higher than other states on the top 10 list.
Oregon also has some of the nations' highest excise taxes on beer purchases, so those who like their craft brews will pay more for the privilege of drinking them.
6. New Hampshire
New Hampshire, like Oregon, doesn't charge sales tax. But, New Hampshire also has something else going for it: it charges no income tax on wages and salaries. The state does charge income tax on interest and dividend income, though, so wage-earners do better than investors in the Granite State.
Unfortunately, the property tax burden is pretty high for New Hampshire residents. Homeowners pay a rate of 1.99% taxes paid as a percentage of owner-occupied housing value. These are some of the highest property tax rates in the U.S. and result in a total of $3,054 in state and local property taxes being collected per capita.
Montana joins several other states on the top 10 list that don't charge sales tax. Property taxes are also pretty low in Montana, with a rate of .76% taxes paid as a percentage of owner-occupied housing value.
Unfortunately, Montana charges an income tax and its top rate of 6.9% is above the national average.
Montana still makes the list of tax-friendly states, though, because the absence of sales tax and low property taxes mean that most residents face a relatively minimal tax burden compared with many of their counterparts in other locales.
Florida has earned its place on the top 10 list because it's one of the few states that does not charge a personal income tax. This lack of a personal income tax -- coupled with the state's pleasant weather -- has made Florida not just a haven for retirees in recent years, but also for residents fleeing higher tax states such as New York.
Florida's not just a tax-friendly state because of the absence of a personal income tax either. There's a combined 6.80% state and local sales tax rate, which puts Florida in the bottom half of states when it come to sales tax rates.
In addition, the property tax rate of .99% is competitive with the national average, although is above some of the tax-friendly states on this list.
3. South Dakota
South Dakota is one of just three states that does not charge a corporate or individual income tax, so it's no surprise the state is near the top of the list of the country's most tax-friendly locales. But unlike Nevada, South Dakota doesn't charge a tax on gross receipts either, which helps to explain why it's higher up on the list.
South Dakota does charge sales tax, with a combined state and local rate of 7.1%. While this is competitive, property taxes are well above some of the other tax-friendly states on this list. In South Dakota, the property tax rate is 1.21% taxes paid as a percentage of owner-occupied housing value.
Still, the absence of personal and corporate income tax makes South Dakota a good place to live and do business even if you may have to pay a bit more in taxes for your home.
Like the other states that top this list, Alaska doesn't charge personal income taxes, although the state does tax corporations. Alaska also has no statewide sales tax, although localities throughout Alaska do have the right to charge sales taxes locally.
Alaska is actually the only state on the list where individuals don't have to pay state sales tax or state income tax, which clearly explains why the state is No. 2 on the list of the most tax-friendly places to live.
Alaska can get away with not charging these taxes because it receives much of its revenue from petroleum reserves. The state has something else that sets it apart as well: residents receive a check from the Alaska Permanent Fund Corporation each year -- so Alaskans actually get money back from the government instead of sending taxes in!
Finally, Wyoming is considered to be the most tax-friendly state of all.
Wyoming charges no personal or corporate income tax, nor does it charge a gross receipts tax. Wyoming does collect a state sales tax, but it's pretty low at just 4%. Even when combined with local sales taxes, the total average state and local sales tax rate is just 5.46%, which is one of the lowest rates in the U.S.
Property taxes are also low in Wyoming, with the state charging just .55% taxes paid as a percentage of owner-occupied housing value.
Since Wyoming is competitive on just about all major taxes, it's not surprising at all that it has earned a vaulted place as the No. 1 most tax-friendly state in the country!
Is your state on the list?
If your state is not on the list, chances are good you're paying much more in taxes than many of your fellow countrymen.
While your state may provide more services in exchange for added tax revenue, you may want to consider relocating to a more tax-friendly locale if you're tired of so much of your cash going to the government.
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