Some states have high sales taxes and property taxes, but no income taxes. Other states have no sales tax, but high income taxes. So how do you compare them? How do you know where you’ll pay the least tax? The Tax Foundation has created a list that answers this very question. Their list of state tax burdens takes all state and local taxes into account and ranks the states based on their overall estimated tax burden.
States With The Lowest Taxes
To rank the state’s tax burdens, the Tax Foundation compared the total taxes that state residents pay as a percentage of per capita income. Included in the total taxes are local taxes such as property taxes and local sales taxes. The states whose residents pay the least in taxes are:
- Alaska at 6.4% of income
- Nevada at 6.6% of income
- Wyoming at 7% of income
- Florida at 7.4% of income
- New Hampshire at 7.6% of income
It’s interesting to note that none of these states have an individual income tax.
States With The Highest Taxes
At the bottom of the Tax Foundation’s rankings were these states, with the highest tax burdens in the nation:
- New Jersey at 11.8% of income
- New York at 11.7% of income
- Connecticut at 11.1% of income
- Maryland at 10.8% of income
- Hawaii at 10.6% of income
New York and New Jersey consistently come in on top as the highest taxing states. These two states have topped the list of the worst states for business taxes and New York counties have made the top of the list for the having highest property taxes in the nation. New York also has some of the highest sales taxes in the nation and all of the states on the list have high income tax rates for their top tax brackets.
Things to Think About
Each state has a unique mix of taxes that affect both residents and non-residents. This makes creating a comprehensive ranking of overall tax burdens a difficult undertaking and one that can be looked at in different ways. These different ways of estimating tax burdens has actually ignited a feud between the Tax Foundation and the Census Bureau who publishes their own state by state list. The Tax Foundation has criticized the Census Bureau's list for not including local taxes and for only looking at the amount of taxes collected by the states, which could be paid by either residents or non-residents such as tourists. The Tax Foundation's list takes into account state and local taxes such as property taxes and local sales taxes. They then rank the states based on how much state residents pay in state and local taxes as a percentage of per capita income. The Census Bureau has criticized the Tax Foundation’s list because they frequently change their methodology and, for example, if a Connecticut resident works in New York and pays taxes to New York, those tax dollars are counted in Connecticut’s tax burden since the taxes were paid by a Connecticut resident. The Tax Foundation has responded to this criticism on their website.
Since this is not an exact science, but just an estimation of state and local tax burdens, it may be worthwhile to look at both lists and the methods used to compare the states and draw your own conclusions.