States with no Income Tax

Alaska

With no state income or sales tax, Alaska has the lowest tax burden in the United States though local areas are still allowed to charge one. As a result of the state's isolation, it may be an expensive place to live. It also has one of the nation's highest business tax rates (9.4 percent).

Florida

Florida is highly reliant on sales taxes and property taxes since it does not have a state income tax. According to the Council for Community and Economic Research, despite Florida's reputation as a tax haven and retirement haven, the state's cost of living is higher than the national average. Consumers may be forced to pay taxes in different ways due to the state and local sales tax average of 7.01 percent (the 27th highest in the country).

Nevada

Almost all of the state's income comes from higher-than-average sales taxes and levies associated with gaming. Out-of-state tourists, on the other hand, may suffer the brunt of such expenditures in a tourism-driven economy.

New Hampshire

A 5% tax is imposed on interest and dividend income that exceeds $2,400 for person yearly, or $4,800 for joint filers, in the state of New Hampshire. Those who are aged, blind, or crippled may be eligible for exemptions. In the meanwhile, the state's property tax rate is the third highest in the nation (1.89 percent).

South Dakota

In addition to not collecting income taxes, South Dakota has one of the lowest state sales tax rates in the nation at 4.5 percent. However, municipalities may take an additional 1% to 2%. In addition to cigarette excise taxes and bank franchise taxes, the state's Department of Revenue collects a range of other special taxes. According to the Tax Foundation, the real sales tax rate in South Dakota is 6.4 percent when additional local and municipal taxes are included.

Tennessee

Residents of Tennessee are exempt from paying state income taxes. A charge known as the "Hall Tax" used to be levied on dividends and interest income in the Volunteer State, but that tax was abolished in 2021 for the 2022 tax year. At 9.55 per cent, Tennessee has the second-highest state and local sales tax rate in the United States.

Texas

Despite the absence of a state income tax, the combined sales and municipal taxes in Texas total 8.19 percent, ranking it as the 14th highest in the US. The state sales tax is 6.25 percent, and local governments may tack on an extra 1.94 percent if they so choose. To put it another way, Texas has the sixth-highest tax rate in the US at 1.6%.

Washington

Sales taxes in the state of Washington are the tenth highest in America, despite not having an income tax. In addition to the 6.5 percent state sales tax, cities and municipalities may impose a sales tax of up to 9.29 percent.

Wyoming

Wyoming does not impose an income tax on individuals or businesses. An average municipal sales tax of 1.34 percent adds up to a total sales tax rate of 5.34 percent.

Moving toward tax free state

Start by looking at your most recent tax return to see whether relocating to a state with no income tax makes financial sense. Calculate the amount of state income tax you paid. Depending on where you live, you may be subject to either a flat tax or a progressive tax system that determines how much you pay in taxes. Afterwards, do a comparison with the cost of living in the new state. Both regions should be compared for property and sales tax rates and other cost of living factors, such as housing and food. Your family and educational background may also play a role in your decision-making process.

The Bottom Line:

A tax-friendly state may be particularly beneficial to those who live in states with high taxes, but don't make it your only reason for migrating. You must consider the big picture. Have a tax professional have a look at the numbers once you've done some basic research of your own. A whole financial choice should never be made because of tax considerations.