Sometimes it seems that everything we do is taxed. If we're not paying taxes to the federal government, we're paying taxes to the state, county, or city. And while it's natural to think that lower taxes are always better, we can't forget that taxes generally go toward important projects like building highways and funding public schools.
Some states are quite efficient in their use of taxes, charging residents relatively little yet managing to provide high-quality services. Other states, alas, charge high taxes yet offer a rather poor level of services. Ideally, a state should charge low taxes yet offer a decent level of services to its residents.
You'll find a sampling of states below that offer either extremely low tax burdens or low to moderate taxes combined with a high relative level of services. They're presented in no particular order, as your own priorities will determine which state has the best "deal" for you.
Year after year, Wyoming tops the list of low-tax states in various surveys. Wyoming charges no income tax to residents -- not even corporations. Its effective property tax rate of 0.61% is the seventh-lowest in the nation, and average sales and excise taxes are a relatively low 4.65%. And despite these low tax rates, Wyoming does a pretty good job in providing services: Wallet Hub's latest study on taxpayer ROI ranked the state 17th in the nation for quality of services.
Alaska may be the only state in the union to actually pay its residents to live there. The Permanent Fund Dividend distributes an annual payment to each legal resident of the state; in 2016, Alaskan residents received $1,022 each. There is no state income tax, and the average sales and excise tax rate is a measly 1.65%. And the effective property tax rate is 1.18%, putting it in the middle of the pack compared to other states. However, Alaska received the lowest overall scores for quality of services in the entire nation. Think on that before saying, "Yukon ho!"
South Dakota charges no state income tax, and its sales tax rates are fairly low. However, there's a catch: Unlike most states, South Dakota applies sales tax to food and nonprescription drugs. As a result, its effective sales and excise tax rate is a somewhat high 5.37%. The effective property tax rate is 1.32%, which is a bit on the high side (the 16th-highest property tax rate in the nation). On the other hand, South Dakota also ranked 16th in quality of services. In fact, it's No. 1 in infrastructure and pollution services (which includes factors like quality of roads, average commute time, and water and air quality) and No. 2 in health services. The combination makes South Dakota a great choice for high-income taxpayers.
The state of Washington (not to be confused with Washington, D.C.) has no state income tax for individuals or for corporations, but it does have the highest effective sales and excise tax rate in the nation, at 8.16%. Its effective property tax rate of 1.09% puts it smack in the middle of the pack. Washington also ranked in the middle of the pack regarding quality of services: It's No. 21 in the nation overall, with moderate scores in all service categories. If you own a small business that's incorporated, Washington State can save you a ton on both personal and business taxes.
North Dakota's state income tax rate ranges from 1.1% to 2.9%, among the lowest rates in the nation. Its effective sales and excise tax rate is a relatively high 5.58%, while effective property taxes are a moderate 1.11%. Given its relatively low taxes, North Dakota provides an impressive caliber of services: The state is ranked ninth in the nation overall, with high scores in every category except education (where it's ranked 34th).
Residents of Florida pay no state income tax, and while effective sales and excise tax rates are a rather high 5.45%, effective property taxes are a moderate 1.06%. The state is ranked No. 34 in quality of services, with low rankings in the strength of its economy (No. 41 in the nation) and safety (No. 39 in the nation), which drags down its overall ranking. However, if these particular services aren't a high priority for you, Florida may offer you significant tax savings relative to its services.
New Hampshire doesn't charge income tax on wages, but it does tax income from dividends and interest at a flat 5% rate. Its effective sales and excise tax rate is an extremely low 1.65%, but property taxes are among the highest in the nation: The effective property tax rate of 2.15% is the third-highest after New Jersey and Illinois. Given its moderate overall tax rates, though, New Hampshire does extremely well with quality of services. The state is ranked fifth in the nation for overall services, and it's ranked No. 3 for safety.
So many factors go into determining a state's tax burden that just looking at one set of numbers won't give you the whole picture. If you're thinking about moving to a new state and want to take tax rates into account, consider first which is most important to you -- a low income tax, a low sales tax, or low property tax. And don't forget to look at the quality of services the state provides. It may be worth paying a little more to provide your kids with good schools and your whole family with a safe and healthy environment.
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