As the federal tax filing deadline looms closer and closer, many people are starting their federal tax returns.
For most, a state income tax return is due as well. But not for me!
Being a Texan, I’ve never had to file a state income tax return or pay state income tax. Don’t hate! Texas is big. Come on down!
The reality is, most states have a personal state income tax. And the few that don’t impose a state income tax often have other ways of making up that revenue.
States Without State Income Taxes
Here is a quick list of states that do not impose income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Not having to file a state income tax return is one less worry for taxpayers who reside in these states.
How States with No Income Tax Generate Income
Now, before you decide to go rushing off and move to a state that does not levy an income tax, take a quick look at these statistics:
- Tennessee has yet to pass legislation that would require individuals to pay a state income tax, however, Tennessee does require its citizens to pay taxes on dividend and interest income. In addition, Tennessee charges a higher state sales tax to compensate for the loss of revenue.
- Alaska has neither an individual state income tax nor a state sales tax. Rather, it charges a state corporate income tax instead. And local areas often charge a sales tax.
- Neither Nevada nor Texas has either a personal or corporate income tax provision. Instead, Nevada earns the majority of its revenue through the gaming industry and sales tax while Texas relies heavily on franchise taxes and property taxes (I can attest to this one!).
- Like Tennessee, New Hampshire has instituted a tax on interest and dividends; however, there is no sales tax. Property taxes are also high.
- Wyoming has neither personal income taxes nor corporate income taxes. Property taxes and sales taxes are also low.
- Florida utilizes proceeds from state sales tax and corporate income tax to offset lost revenue.
As you can see, tax-free states make up for the absence of income tax by charging other types of taxes, such as sales tax, corporate income tax, and property tax.
In the end, what matters most is which type of tax will benefit you and your situation better – a state income, sales, or property tax.
The Most Tax-Friendly State
So, what is the most tax-friendly state? Well, that depends on who you ask. The states without state income taxes have their own restrictions, as do many of the other states.
In general, you can look to Florida and Texas for some of the lowest taxes overall. Both states rank among the top 10 when it comes to the overall tax burden.
On the other hand, if you’re looking for a state with no income taxes and some of the lowest sales taxes, Washington State is where it’s at! Known as the Evergreen State, it offers both gorgeous vistas and lower taxes than most of its neighbors.
Is it Better to Live in a State with No Income Tax?
The answer to that question is a resounding “it depends!” It’s true that states without income taxes generally have lower overall tax burdens, but don’t forget about other factors like regional cost of living and the availability of services.
That’s why it’s important to consider all the facts before making a decision.
Be sure to consider factors like property taxes, sales taxes, and the availability of public services when deciding whether a state with no income tax is the right move for you.
For example, states without income tax usually charge higher sales taxes to make up for lost revenue. So if you’re planning to buy a lot of goods, you may want to look at other options. Also, don’t forget to consider public services such as infrastructure and educational offerings.
States without income taxes have a lot of advantages, but they may not be the right choice for everyone. Consider all the facts before you make your decision – it could save you from making a costly mistake!
States with Low Income Tax Rates
In addition to the states that do not have an income tax, several other states have relatively low income tax rates. Here are a few examples:
- Arizona: The state income tax rate in Arizona ranges from 2.59% to 4.5%, depending on your income.
- Georgia: Georgia has a graduated income tax rate, with rates ranging from 1% to 6%.
- Idaho: Idaho’s income tax rate ranges from 1.125% to 6.925%, depending on your income.
- Indiana: Indiana has a flat income tax rate of 3.23%.
- Kentucky: Kentucky’s income tax rate ranges from 2% to 6%.
- Missouri: Missouri’s income tax rate ranges from 1.5% to 5.4%, depending on your income.
- North Carolina: North Carolina’s income tax rate ranges from 5.25% to 7%.
- Oklahoma: Oklahoma’s income tax rate ranges from 0.5% to 5%, depending on your income.
These are only a handful of examples, and there may be other states with low-income tax rates available.
Tax-Friendly States for Businesses
When selecting a state for business, several elements may make it more attractive to companies. These factors include the overall taxation rate in the area, corporate tax rates and whether or not there are any incentives or credits available from the local government.
Generally speaking, some of the most favorable states when it comes to taxes for businesses are:
- Nevada: Nevada has no corporate income tax, no personal income tax, and no franchise tax. It also has a relatively low property tax rate.
- South Dakota: South Dakota also has no corporate income tax and no personal income tax. It also has a relatively low property tax rate.
- Texas: Texas has no corporate income tax and no personal income tax. It also has a relatively low property tax rate and a favorable legal environment for businesses.
- Wyoming: Wyoming has no corporate income tax and no personal income tax. It also has a relatively low property tax rate and a favorable legal environment for businesses.
- Florida: Florida has no corporate income tax and no personal income tax. It also has a relatively low property tax rate.
If you’re looking for a place to call home (or set up shop) and don’t want to come with a hefty income tax bill attached, you can’t go wrong with any of these states! The only question left is: which one will you choose? Let the great state-hopping debate begin!
Image source: https://commons.wikimedia.org/wiki/File:Top_Marginal_State_Income_Tax_Rate.svg