States With No Income Tax and What It’s Like Living There

No one enjoys paying taxes, especially more than necessary. It’s normal to look for ways to minimize tax liability. Why pay more in taxes when it’s not required?

One way to accomplish this goal is to live in states with no income tax. As of this writing, nine states do not levy an income tax on their residents: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. 

Living in states without income tax means residents have less money deducted from their paychecks, increasing their take-home pay. However, federal taxes are still in play for anyone meeting the income guidelines, and some states impose taxes on other types of income, as well as other goods and services. 

Living in a No Income Tax State

It’s tempting to plan a move to a place that doesn’t levy state taxes, but before pulling up the stakes, other factors could cost much more than the amount saved. It’s important to consider these aspects before taking that leap and relocating. 

Cost of Living

Before moving to a different state, it’s important to assess the differences in the cost of living. What does the real estate market look like? Is it cheaper to rent or own a residential property? Are utility costs lower or higher in a state without income tax? How about the cost of food and clothing and the taxes on them? These factors affect everyday life, so they’re vital ones to contemplate.

Lifestyle

Something else to evaluate relates to lifestyle, like the availability and cost of healthcare, the cost and distance to entertainment venues, and the quality of schools if children are involved. 

Is the neighborhood of choice safe? How far is it from grocery stores and shopping centers? What is the transit system like, and is it easily accessible? Is a car required to navigate the area? The conveniences from home may not be available in a new location. 

Work

Employees with remote jobs can work from anywhere, but what about job seekers whose work requires them to be onsite? Is the state they’re considering moving to have open jobs in their chosen field at a salary that adequately supports them? What other career opportunities are available?

Other Taxes

States levy taxes to raise revenue and pay for services benefiting their residents, such as education, healthcare, public transit, and infrastructure. States that don’t collect taxes have to rely on other sources of revenue, like gasoline, sales, and property taxes, to pay for these services. Residents of states with lower property taxes or sales taxes may find out they’re better off staying in their current location because it costs less. 

Family and Friends 

One of the hardest parts of relocating to another state is leaving family and friends behind. How far away is the move from the place of origin? Is it a drivable distance, or does travel involve taking a train, bus, or plane? How close are the nearest airport, train, and bus station? 

Weather and Climate

This may seem like a frivolous consideration when deciding whether or not to move to a state without income taxes, but the regional weather and climate can be a make-or-break factor. Take Alaska and New Hampshire. They’re beautiful states, but residents can expect cold, snowy winters. Florida is another state full of sights and attractions, but its year-round tropical climate and hot temperatures aren’t for everyone.

Ready To Go?

The nine states with no income tax are in different regions of the country. Living in each state has pros and cons, especially regarding tax liability. Taxpayers interested in reducing their tax bills and keeping more money in their pockets may want to relocate to these states. 

Alaska

As the largest state in the U.S., Alaska doesn’t levy taxes on regular income but does impose other types of taxes. Despite its massive land size, only 24 boroughs and cities tax properties. 107 municipalities report charging sales taxes on purchased goods and services, ranging from 1 percent to 7 percent. 

Localities also levy taxes on fuel transfers, hotels, motels, and natural gas extractions. Pipeline transportation and oil and gas extraction are Alaska’s two highest revenue generators, making the taxes from those industries critical sources of revenue for the state.

Florida

Besides Walt Disney World and Universal Studios, Orlando, Florida, is best known for having zero income taxes. The state obliges individuals to pay other taxes, including fuel, property, insurance premiums, and sales taxes. Florida has a state sales tax of 6 percent, but local jurisdictions can add up to 2 percent to the sales tax. The combined average of local and state taxes is 7 percent.

Businesses registering with Florida’s Department of Revenue must also pay certain taxes, including the 5.5 percent corporate income tax.

Nevada

Of all the low-taxation states, Nevada is a good place to live. Besides there being no state income taxes, there aren’t any inheritance or estate taxes, which can save beneficiaries a lot of money on any bequests they receive, such as leaving your house to your kids. 

The average property tax rate in the state is also relatively low compared to the rest of the country, at 0.48 percent. Localities can add up to 1.38 percent to the state’s 6.85 percent sales tax. However, groceries and prescription drugs are tax-exempt. 

New Hampshire

Another state with reasonably low taxes, for the most part, is New Hampshire. Workers and consumers save money since there’s no state tax on regular income or state and local sales taxes. A state that doesn’t levy sales taxes at the local or state level is a rarity. 

Income from interest and dividend payments is taxed at a flat rate of 4 percent. At an average of 1.77 percent, New Hampshire has one of the steepest property tax rates in the country. At 7.5 percent, the “Live Free or Die” state has one of the higher corporate income tax rates. 

South Dakota

The Mount Rushmore State has a tax code that greatly benefits its residents and business owners. There are no individual or corporate income taxes or estate or inheritance taxes. The state has a sales tax rate of 4.5 percent, with localities having a maximum sales tax rate of 4.5 percent. The combined average of local and state sales taxes is 6.4 percent. 

Tennessee

Tennessee residents receive a tax break because zero levies are imposed on individual income, inheritance, and estate taxes. However, the state charges a relatively steep tax on state and local sales. 

The current sales tax rate in the state is 7 percent, and the maximum localities can charge is 2.75 percent. The combined average of the state and local sales taxes is 9.55 percent, which can be a dealbreaker for people from other states with lower sales taxes. Companies pay a gross receipts tax and a 6.5 percent flat income tax. 

Texas

Like South Dakota, Texas’s tax code strongly appeals to residents and business owners, which is one of the primary reasons companies and workers relocate there more than any other state. Texas does not impose corporate income taxes but charges a gross receipts tax. 

The Lone Star state does not levy individuals’ income, estate, or inheritance taxes. However, residents must pay state and local sales taxes. The state’s sales tax rate is 6.25 percent, with a maximum local sales tax rate of 2 percent. The average combined local and state sales tax rate is 8.2 percent, which consumers may find is higher than in other states. 

Washington

Wage and salary earners in Washington state don’t have to worry about having their regular income taxed. However, a 7 percent capital gains tax is incurred when investors profit from selling their investments or other assets, like real estate, stocks, bonds, or precious metals. Washington also levies a tax on estates but not on inheritances.

Business owners must pay a gross receipts tax, not a corporate income tax. The state’s median sales tax is on the higher end of the scale. The average combined local and state sales tax is 8.86 percent. This is broken down into a maximum local sales tax of 4.10 percent and a 6.50 percent state sales tax. 

Wyoming 

Wyoming may not be the hottest relocation destination for many individuals and businesses, but that may change if more were aware of the favorable tax rates. For individuals, there’s no tax on income and no estate or inheritance taxes. 

Consumers also fare well with some of the lowest sales taxes in the country. Wyoming’s state sales tax is 4 percent, with a 2 percent maximum local sales tax. On average, the combined local and state sales taxes are 5.36 percent. With no corporate taxes, Wyoming is an ideal environment for companies. 

The Choice Is Yours

Living in one of the nine states that don’t charge an income tax has its share of pros and cons. The money saved in state taxes is often made up for with higher taxes in other areas. While relocating to a no-income-tax state is compelling, it’s important to weigh the benefits and drawbacks first and decide whether or not to make that move.