Nevada vs. Arizona Taxes: A State-by-State Comparison

The American West has long drawn new residents, with Nevada and Arizona standing out as popular destinations. A driver behind this migration is the financial landscape each state offers, as their tax structures influence everything from take-home pay to business operating costs. Understanding these differences is a practical step for anyone considering a move. This comparison explores personal, business, sales, and property taxes to clarify the economic realities of living and working in these two states.

Personal Income Tax

A primary distinction between the two states is their approach to personal income tax. Nevada is one of a handful of states that does not levy a state-level individual income tax on wages, salaries, or investments. This results in higher take-home pay, as only federal taxes and other payroll deductions are withheld from earnings.

Arizona, in contrast, has a state income tax, recently simplified to a single flat rate of 2.5% for all income levels. This rate applies to most forms of income, making the calculation straightforward. While not zero, Arizona’s flat tax is one of the lowest in the nation among states with an income tax.

The financial impact is clear in specific scenarios. An individual earning $75,000 annually would have a state income tax liability of $0 in Nevada, while in Arizona, the 2.5% flat tax results in a bill of $1,875. For a married couple with a combined income of $150,000, the liability in Arizona would be $3,750, compared to $0 in Nevada.

Sales and Use Taxes

The final sales tax a consumer pays in Nevada and Arizona is a combination of the state rate and various local taxes from counties and cities. This structure means the total rate can vary significantly from one location to another within the same state.

Nevada’s statewide sales tax rate is 6.85%. Counties can add their own taxes, leading to higher combined rates. For example, in Las Vegas (Clark County), the total sales tax rate is 8.375%.

Arizona has a statewide sales tax rate of 5.6%, but its counties and cities also levy their own transaction privilege taxes. In Phoenix (Maricopa County), the combined rate is 8.6%, and some Arizona cities have total rates that exceed 10%.

The tax base, or what is subject to sales tax, also differs. Prescription drugs are exempt in both states. A distinction arises with groceries: Arizona does not tax most groceries at the state level but allows its cities to do so. Nevada provides a broad exemption for most food for home consumption at both state and local levels. Services are typically not taxed in either state, though this can vary for specific industries.

Property Taxes

Property taxes in Nevada and Arizona are a component of homeownership costs and are calculated using different methods. Both states calculate property tax based on an assessed value, which is a percentage of the property’s market value, not the full market price.

Arizona uses a “Limited Property Value” (LPV) for its primary tax calculations, which restricts how much the value can increase annually to prevent large spikes in tax bills. The state’s average effective property tax rate is approximately 0.63%.

Nevada’s system applies a 35% assessment ratio to the taxable value of a property and also caps annual tax increases on a primary residence. Nevada’s average effective property tax rate is lower, at around 0.44%.

To illustrate, a home with a market value of $400,000 would have an approximate annual tax bill of $2,520 in Arizona (0.63% effective rate) and $1,760 in Nevada (0.44% effective rate). Both states offer property tax relief programs for seniors or veterans, which can reduce these amounts for eligible residents.

Business Taxes

The business tax environments in Nevada and Arizona are different. Arizona employs a corporate income tax system, while Nevada uses a system based on gross revenue and payroll, forgoing a corporate income tax.

Arizona levies a flat corporate income tax of 4.9% on a business’s net taxable income. A highly profitable business would pay tax on those profits, while a low-margin business with little net income would have a minimal tax liability.

Nevada has no corporate income tax, funding operations through two business taxes instead. The Commerce Tax is a gross receipts tax on businesses with annual Nevada revenue over $4 million, with rates varying by industry. The Modified Business Tax is a 1.17% tax on total wages paid by general businesses after deductions for employee health insurance.

This creates different incentives. A high-revenue, low-profit retailer in Nevada might pay a substantial Commerce Tax on its revenue, while paying less in Arizona based on its small profit. In contrast, a high-profit service business with revenue below the $4 million threshold might pay little in Nevada, making it more favorable than Arizona’s 4.9% tax on its profits.

Retirement and Estate Taxes

Both Nevada and Arizona are popular for retirees and offer favorable tax environments. Neither state taxes Social Security retirement benefits, but their treatment of other retirement income differs.

In Nevada, the zero-income-tax policy means distributions from pensions, 401(k)s, and IRAs are not taxed. Arizona, however, taxes distributions from these accounts as regular income at its 2.5% flat rate. This is a key distinction for retirees.

The states are identical in their approach to posthumous wealth transfer. Neither Nevada nor Arizona has a state-level estate tax or an inheritance tax. This allows wealth to be passed to heirs without reduction from state taxes.