States with Lowest Tax Burden: Income, Property & Sales Taxes

Understanding Overall Tax Burden by State

When evaluating states with the lowest overall tax burden, it's essential to consider the combined impact of income, property, and sales taxes. The overall tax burden represents the percentage of total personal income that residents pay toward state and local taxes. States with lower tax burdens typically collect less revenue through these three primary tax categories, potentially saving residents thousands of dollars annually.

Tax burden varies significantly across the United States, with some states deliberately maintaining lower rates to attract residents and businesses. According to the Tax Foundation, the difference between high-tax and low-tax states can represent more than 5% of a resident's income. For a household earning $75,000 annually, this difference could exceed $3,750 per year in tax savings by living in a state with a lower overall tax burden.

Top 10 States with the Lowest Overall Tax Burden

Based on comprehensive analysis of state and local tax collections as a percentage of personal income, the following states consistently rank among those with the lowest overall tax burden. Wyoming leads the list with its unique tax structure heavily funded by natural resource taxes rather than personal taxes. Alaska follows closely, with substantial oil revenue allowing it to maintain minimal personal tax obligations.

The rankings below incorporate data from multiple sources including the Tax Foundation, U.S. Census Bureau, and state revenue departments to provide a holistic view of tax obligations across different jurisdictions.

*Tennessee previously had a tax on investment income (Hall Tax) that has been fully phased out as of 2025.

States with No Income Tax

One of the most significant components of overall tax burden is state income tax. Currently, eight states have no individual income tax, making them particularly attractive for high-income earners. These states must generate revenue through other means, typically through higher property taxes, sales taxes, or natural resource taxes.

States without income tax often appeal to retirees, entrepreneurs, and professionals with substantial earnings. However, the absence of income tax doesn't automatically guarantee the lowest overall tax burden, as other taxes may offset these savings. For instance, Washington state has no income tax but imposes relatively high sales taxes and recently added a capital gains tax on high earners.

• Alaska: No state income tax and no state sales tax, funded primarily by oil revenues
• Florida: No state income tax, relies heavily on tourism and sales tax
• Nevada: No state income tax, substantial revenue from gaming and sales taxes
• South Dakota: No state income tax, moderate sales and property taxes
• Tennessee: No personal income tax (fully phased out as of 2025)
• Texas: No state income tax, higher property taxes to compensate
• Washington: No state income tax, but has high sales tax and new capital gains tax
• Wyoming: No state income tax, funded by natural resource extraction

Impact of No Income Tax on Overall Tax Burden

The absence of state income tax can significantly reduce the overall tax burden for residents, particularly those with higher incomes. For a family earning $100,000 annually, living in a state without income tax could save between $2,000 and $10,000 per year compared to high-income-tax states like California or New York, where top marginal rates exceed 10%.

However, the actual impact depends on your specific financial situation. Property owners, frequent shoppers, and those with substantial investments may find that higher rates in other tax categories partially offset income tax savings. For example, Texas has no income tax but maintains property tax rates among the highest in the nation, which can substantially impact homeowners.

States with Low Property Tax Rates

Property taxes represent a significant expense for homeowners and can substantially influence the overall tax burden. States with the lowest effective property tax rates often attract retirees and those looking to maximize home purchasing power. Property taxes are typically assessed at the local level, making them more variable within states, but state policies and assessment methods create significant differences between states.

Hawaii maintains the lowest effective property tax rate nationally at just 0.31%, despite high property values. Other states with notably low property tax rates include Alabama (0.40%), Louisiana (0.52%), Wyoming (0.55%), and Colorado (0.51%). These rates represent the effective tax as a percentage of home value, which provides a standardized comparison across jurisdictions with different assessment methods.

Property Tax Calculation Methods

Understanding how property taxes are calculated helps explain why effective rates vary so dramatically between states:

1. Assessment Ratio: Some states assess property at full market value, while others use a percentage (e.g., 20% of market value)
2. Millage Rates: Tax rates expressed as dollars per thousand of assessed value
3. Homestead Exemptions: Many states offer exemptions that reduce the taxable value for primary residences
4. Assessment Limitations: Some states cap annual increases in assessed values
5. Classification Systems: Different property types may be taxed at different rates

The interaction of these factors creates the effective property tax rate, which is what homeowners actually pay relative to their property's market value. States with the lowest property tax burdens typically employ favorable combinations of these policies to minimize homeowner costs.

States with Low Sales Tax Burdens

Sales taxes directly impact daily purchasing power and represent a significant component of overall tax burden. Five states currently impose no state sales tax: Alaska, Delaware, Montana, New Hampshire, and Oregon. However, it's important to note that Alaska allows local sales taxes despite having no state-level sales tax.

Among states that do impose sales tax, those with the lowest rates include Colorado (2.9% state rate), Hawaii (4% general excise tax), Wisconsin (5%), Wyoming (4%), and Missouri (4.225%). However, the effective sales tax burden depends not just on rates but also on what items are taxable and whether local jurisdictions add their own sales taxes.

Factors Affecting Sales Tax Burden

The actual sales tax burden experienced by residents depends on several factors beyond the nominal rate:

• Local Option Taxes: Many states allow counties and municipalities to add their own sales taxes, which can significantly increase the total rate
• Taxable Items: States differ in whether they tax groceries, clothing, services, and digital products
• Exemptions: Many states offer sales tax holidays or exempt certain essential items
• Border Shopping: Residents near state borders may shop in lower-tax jurisdictions
• Tourism Impact: States with high tourism can export tax burden to visitors

Delaware stands out with its complete absence of sales tax, making it a shopping destination for residents of neighboring states. Similarly, New Hampshire attracts substantial retail traffic from Massachusetts residents seeking to avoid sales tax on large purchases.

Tax-Friendly States for Different Demographics

The "best" low-tax state varies significantly depending on your specific financial situation, age, and income sources. For retirees living primarily on Social Security and retirement account distributions, states that don't tax these income sources may offer the greatest advantage. For high-income professionals, states without income tax typically provide the most significant savings.

Families with moderate incomes who own homes may benefit most from states with low property taxes and exemptions for necessities. Meanwhile, entrepreneurs and business owners should consider both personal tax burdens and business-related taxes like corporate income tax, unemployment insurance tax, and franchise taxes.

Best States for Retirees

• Wyoming: No income tax, low property taxes, and no tax on Social Security or retirement income
• Florida: No income tax, homestead exemptions for property tax, and no tax on retirement income
• Nevada: No income tax and moderate property taxes with age-based exemptions
• Delaware: No sales tax, low property taxes, and no tax on Social Security benefits
• South Dakota: No income tax and property tax relief programs for seniors

Best States for High-Income Earners

• Texas: No income tax benefits those with high salaries, despite higher property taxes
• Tennessee: No income tax and relatively low property taxes
• Washington: No income tax (except new capital gains tax on very high earners)
• Florida: No income tax and no estate tax
• Nevada: No income tax and no estate or inheritance taxes

Considerations Beyond Tax Rates

While tax burden is an important consideration when evaluating potential relocation, it shouldn't be the only factor. States with lower tax burdens may offer fewer government services or have different quality-of-life factors that could offset tax savings. Additionally, employment opportunities, housing costs, healthcare access, and climate preferences should factor into relocation decisions.

Some low-tax states achieve their status through natural resource revenue or tourism, which may create economic volatility during downturns. Others may have higher costs of living that effectively negate tax savings. A comprehensive analysis should consider your specific financial situation, lifestyle preferences, and long-term goals beyond immediate tax advantages.

Questions to Ask Before Relocating for Tax Purposes

1. How would my specific income sources be taxed in the new state?
2. What property tax relief programs might I qualify for?
3. How do local sales taxes affect the total rate in my potential new community?
4. What services might be reduced or privatized in a low-tax state?
5. How stable is the state's tax system and economy?
6. What other costs might increase to offset tax savings?
7. How would a move affect my employment opportunities or business operations?

Conclusion: Finding Your Optimal Tax Environment

The states with the lowest overall tax burden offer significant potential savings through reduced income, property, and sales taxes. Wyoming, Alaska, Tennessee, Delaware, and New Hampshire consistently rank among the most tax-friendly states when considering the combined impact of all major tax categories. For many households, relocating to a low-tax state could save thousands of dollars annually.

However, the "best" state tax environment depends heavily on your specific financial profile, income sources, and spending patterns. High-income earners benefit most from states without income tax, while retirees may prioritize states that don't tax retirement income and offer property tax breaks for seniors. Careful analysis of your unique situation will help identify which low-tax state offers the optimal balance of tax savings and quality of life for your circumstances.