Which State Truly Has the Lowest Taxes?

Determining which state has the lowest taxes depends on an individual’s financial circumstances. A state that is a low-tax option for a high-income earner might be a high-tax state for a retiree with significant property. A person’s total tax liability is a composite of multiple tax types, each varying by state. A true assessment requires looking beyond a single category, as an individual’s income, spending habits, and property ownership all play a part in calculating their total tax burden.

States Without a Personal Income Tax

The absence of a personal income tax on wages is a factor for many when assessing a state’s tax environment. Eight states do not levy a broad-based personal income tax:

• Alaska
• Florida
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Two other states have unique situations. Washington, while not taxing earned income, imposes a 7% tax on long-term capital gains from asset sales that exceed a specific threshold. For gains $1 million over this threshold, the rate increases to 9.9%. New Hampshire’s tax on interest and dividend income was repealed effective January 1, 2025, making it the ninth state to forgo taxing any form of personal income.

State governments must generate revenue to fund public services. States without an income tax often rely more heavily on other forms of taxation, such as property or sales taxes, to balance their budgets. For example, Wyoming generates substantial revenue from taxes on mineral extraction, which helps offset the need for a personal income tax.

Analyzing State and Local Sales Taxes

State and local sales taxes can vary significantly. Five states have no statewide sales tax: Delaware, Montana, New Hampshire, and Oregon. Alaska also has no statewide sales tax but allows local jurisdictions to levy their own. In the 45 states with a statewide sales tax, the rate you pay is a combination of the state rate and any additional local tax. This combined rate is what determines the tax on a purchase.

For instance, California has the highest state-level rate at 7.25%, but its combined rate is among the highest in the nation. The states with the highest average combined sales tax rates are:

• Louisiana (10.12%)
• Tennessee (9.56%)
• Arkansas (9.46%)
• Washington and Alabama (9.43%)

Conversely, the states with the lowest average combined rates, excluding those with no sales tax, are:

• Alaska (1.82%)
• Hawaii (4.50%)
• Wyoming (5.44%)
• Maine (5.50%)
• Wisconsin (5.70%)

The impact of sales tax also depends on what is being taxed. Many states provide exemptions for categories like groceries, prescription and non-prescription drugs, and some clothing, which can lower the effective tax burden.

The Impact of Property Taxes

Property taxes are levied at the local level by counties, cities, and school districts and are a primary source of funding for public services. To compare states, it is helpful to use the “effective property tax rate,” which measures the annual property tax paid as a percentage of a home’s market value. Using this metric, the states with the highest effective property tax rates are New Jersey (2.23%), Illinois (2.07%), and Connecticut (1.92%). Homeowners in these states pay a higher portion of their home’s value in taxes each year.

On the other end of the spectrum, states with the lowest effective property tax rates include:

• Hawaii (0.27%)
• Alabama (0.38%)
• Colorado (0.49%)
• Nevada (0.49%)
• South Carolina (0.51%)

A low rate does not always equate to a low tax bill, as property values play a large role. For example, Hawaii has the lowest rate in the country, but its high median home values can still result in a significant tax payment.

Measuring the Total Tax Burden

To identify which state has the lowest taxes, one must consider the “total tax burden.” This metric measures the total percentage of personal income that residents pay in all state and local taxes combined. This provides the most holistic view of a state’s tax environment. According to recent analyses, the states with the lowest total tax burdens are:

• Alaska (4.9%)
• Wyoming (5.8%)
• New Hampshire (5.9%)
• Tennessee (6.4%)
• Florida, Delaware, and South Dakota (6.5%)

Conversely, the states imposing the highest total tax burdens are:

• Hawaii (13.92%)
• New York (13.56%)
• Vermont (11.53%)
• California (11.00%)
• Maine (10.64%)

The total tax burden reveals that a state’s reputation can be misleading. For example, while Tennessee has one of the highest combined sales tax rates, its lack of a personal income tax contributes to it having one of the lowest overall tax burdens.

Considering Estate and Inheritance Taxes

Estate and inheritance taxes are levied on the transfer of wealth after death. An estate tax is paid by the deceased person’s estate before assets are distributed, while an inheritance tax is paid by the individuals who receive the inheritance. The federal government’s estate tax has a high exemption amount ($13.61 million for an individual in 2025), affecting only the wealthiest estates.

However, twelve states and the District of Columbia impose their own estate tax, often with much lower exemption thresholds. These states include:

• Connecticut
• Hawaii
• Illinois
• Maine
• Maryland
• Massachusetts
• Minnesota
• New York
• Oregon
• Rhode Island
• Vermont
• Washington

Five states levy an inheritance tax, where the rate often depends on the relationship of the heir to the deceased, as spouses are often exempt while more distant relatives pay a higher rate. These states are Nebraska, Kentucky, Pennsylvania, Maryland, and New Jersey. Maryland is the only state to levy both an estate tax and an inheritance tax. For individuals with significant assets, the presence of these taxes can be a factor in long-term financial and residency planning.