9 States With No Income Tax and the Lowest Tax Burdens

Comparison of States With No Income Tax
No-Tax State Total Tax Burden (% of income) Total Tax Burden Rank (1=lowest) Affordability (1=best) Best State to Live in (1=best)
Alaska 5.06% 1 40 49
New Hampshire 6.14% 3 36 6
Tennessee 6.22% 4 14 24
Florida 6.33% 5 38 10
Wyoming 6.42% 6 18 26
South Dakota 6.69% 7 8 12
Nevada 7.69% 19 34 38
Texas 8.01% 22 33 35
Washington 8.24% 26 46 2
Sources: WalletHub Tax Burden by State, U.S. News & World Report Affordability, and U.S. News & World Report “Best States to Live In” rankings

1. Alaska

Total Tax Burden: 5.06%

Alaska has no state income or sales tax. The total state and local tax burden on Alaskans, including income, property, sales, and excise taxes, is just 5.06% of personal income, the lowest of all 50 states.

All residents of Alaska receive an annual payment from the Alaska Permanent Fund Corp. made up of revenue and investment earnings from mineral lease rentals and royalties. The per citizen dividend payment for 2023 was $1,312.

Alaska has one of the highest and fastest-rising healthcare costs of any state in the U.S. That said, at $13,642 per capita in 2020—the most recent year the Centers for Medicare and Medicaid Services (CMS) Office of the Actuary reported statistics as of September 2023—it also spent the most on healthcare, excluding the District of Columbia. Alaska also spent $19,540 per student in fiscal year 2021, the highest of any other state.

2. Florida

Total Tax Burden: 6.33%

This popular snowbird state features warm temperatures and a large population of retirees. Sales and excise taxes in Florida are above the national average, but the total tax burden is just 6.33%—the fifth-lowest in the country.

As of 2023, Florida ranks 38th in affordability due to its higher-than-average housing costs. It’s affordability has also been steadily decreasing, as it was ranked as the 31st most affordable state in 2020. Still, Florida came in at 10 on the U.S. News & World Report “Best States to Live In” list.

In 2021, Florida was one of the lowest states regarding education spending per capita at $10,401. In 2021 the ASCE gave Florida a C grade for its infrastructure. Six years earlier, Florida received the same grade from the Education Law Center for the fairness of its state school funding distribution. In 2014, its healthcare spending per capita was $8,076, $31 more than the national average; six years later, Florida spent $9,865 per capita in 2020.

3. Nevada

Total Tax Burden: 7.69%

Nevada relies heavily on revenue from high sales taxes on everything from groceries to clothes, sin taxes on alcohol and gambling, and taxes on casinos and hotels. This results in a state-imposed total tax burden of 7.69% of personal income for Nevadans, the second-highest on this list. However, it still ranks a very respectable 19 out of 50 when compared with all states.

That said, the high costs of living and housing put Nevada closer to the bottom (34) when it comes to affordability. The state ranks 38th on the U.S. News & World Report “Best States to Live In” list.

Nevada’s spending on education in 2021 was $10,450, among the lowest quartile across the United States and the fourth-lowest in the western region of the U.S. The latest infrastructure report card (as of 2023) from ASCE in 2018 gave Nevada a grade of C for its infrastructure.

Nevada has also historically had low spending habits in relation to healthcare. Nevada’s healthcare spending in 2014 was $6,714 per capita, the lowest on this list and the fourth-lowest nationally. This has since increased to $8,348 per capita but is now the third lowest by state.

4. South Dakota

Total Tax Burden: 6.69%

Like many states with no income tax, South Dakota rakes in revenue through other forms of taxation, including taxes on cigarettes and alcohol. The home of the Lakota Sioux and the Black Hills has one of the highest sales tax rates in the country and above-average property tax rates. South Dakota’s position as home to several major companies in the credit card industry, in addition to higher property and sales tax rates, helps to keep the state’s residents free from income tax, according to reporting by The Atlantic.

South Dakotans pay just 6.69% of their personal income in taxes, according to WalletHub, ranking the state eighth in terms of the total tax burden. The state ranks 8th in affordability and 12th on the U.S. News & World Report “Best States” lists.

South Dakota spent $8,933 per capita on healthcare in 2014, the 14th highest in the nation. This has since improved as the latest report from 2020 shows South Dakota spending $12,495 per capita, good for 8th in the nation. Although it spent more money on education, at $10,952 per pupil in 2019, it spent less than any other neighboring Midwestern state.

South Dakota hasn’t received an official letter grade from the ASCE, though much of its infrastructure is notably deteriorated, with 17% of bridges rated structurally deficient and 90 dams considered to have high hazard potential as reported in 2021.

5. Texas

Total Tax Burden: 8.01%

The Lone Star State loathes personal income taxes so much that it decided to forbid them in the state’s constitution. Still, because infrastructure and services must be paid for somehow, Texas relies on income from sales and excise taxes to foot the bill.

Sales tax can be as high as 8.25% in some jurisdictions. Property taxes are also higher than in most states, the net result of which is a total tax burden of 8.19% of personal income. Nevertheless, Texans’ overall tax bite is still one of the relatively lowest in the U.S., with the state ranking 22nd. Texas is average for affordability at 33rd in the nation, but it was ranked 35st by U.S. News & World Report on the “Best States to Live In” list.

Texas spent $11.005 per pupil on education in 2021. Also in 2021, the ASCE awarded it a grade of C for its infrastructure. Texas spent $6,998 per capita on healthcare in 2014, the seventh-lowest amount in the U.S. This since increased to $8,406 per capita, good for the fourth-lowest in the nation.

One advantage of living in a no-tax state is that the $10,000 cap on state and local tax (SALT) deductions imposed by the Tax Cuts and Jobs Act will likely not have as great an impact as it does on residents of high-tax states, such as California and New York.

6. Washington

Total Tax Burden: 8.24%

Washington hosts a young population, with only 15.9% of its residents over age 65, and many major employers, thanks to the lack of state-mandated corporate income tax (note that high-income earners are subject to state capital gains tax). Residents do pay high sales and excise taxes, and gasoline is more expensive in Washington than in most other states. The state comes in at 26 out of 50, with a total tax burden of 8.24%.

Unusually higher-than-average living and housing costs hurt Washingtonians, putting the state at 46th in terms of affordability. For some residents that might not matter, however, because their state was ranked by U.S. News & World Report as the overall second best state to live in.

Washington spent $7,913 per capita on healthcare in 2014, $132 below the national average. By 2020, Washington was spending $9,265 per capital, good for 40th. Conversely, at $15,570 per pupil, it spent more on education than most in 2021, though it received a C grade for its school funding distribution six years earlier. In 2019, Washington earned the same grade for its infrastructure from the ASCE.

7. Wyoming

Total Tax Burden: 6.42%

With an estimated six people per square mile, Wyoming is the second least densely populated state, bested only by Alaska, which has roughly one human being for every square mile. Citizens pay no personal or corporate state income taxes, no retirement income taxes, and enjoy low sales tax rates. The total tax burden—including property, income, sales, and excise taxes as a percentage of personal income—is 6.42%, ranking the state sixth lowest.

Like Alaska, Wyoming taxes natural resources, primarily oil, to make up for the lack of a personal income tax, according to reporting in the Cowboy State Daily. The state ranks an average 18th in affordability and 26th on the U.S. News & World Report list of “Best States to Live In.”

In 2021, Wyoming spent $18,144 per pupil; among the best quartile of U.S. states and more than double that per student of it’s neighbor Idaho. It also earned a grade of A for its school funding distribution back in 2015, the best on this list.

Wyoming’s healthcare spending in 2020 was also relatively strong at $10,989 per capita. Although Wyoming hasn’t received an official letter grade for its infrastructure yet, the ASCE found that 6.9% of its bridges are structurally deficient and 99 of its dams have a high hazard potential in 2021.

8. Tennessee

Total Tax Burden: 6.22%

Before 2016, Tennessee taxed income from investments, including most interest and dividends but not wages. Legislation passed in 2016 included a plan to lower taxes on unearned income by 1% per year until the tax was eliminated at the start of 2021.

With full implementation of the new legislation, Tennessee expects to attract retirees who depend heavily on investment income. The state’s total tax burden is 6.22%, the fourth-lowest in the nation. In the affordability category, Tennessee ranks 14th overall, and on the U.S. News & World Report “Best States to Live In” list, it ranks 24th.

In 2021, at $10,507 per pupil, Tennessee ranked towards the bottom across the United States in terms of education spending. At $9,336 per capita, Tennessee also ranked towards the bottom in terms of healthcare spending in 2020. The state hasn’t received an official letter grade for its infrastructure yet, although the ASCE did note that 4.4% of its bridges are structurally deficient and 276 of its dams have a high hazard potential.

9. New Hampshire

Total Tax Burden: 6.14%

New Hampshire does not tax earned income but does tax dividends and interest. New Hampshire’s Senate passed legislation to phase out the investment income tax by 1% per year over five years, with full implementation by 2027. The state has no state sales tax but does levy excise taxes, including taxes on alcohol, and its average property tax rate of 1.86% of property values is the third highest in the country.

Even so, New Hampshire’s total tax burden is just 6.14%, according to WalletHub, ranking the state third in the nation. The state ranks sixth on the U.S. News & World Report list of “Best States to Live In” and 36th in the nation for affordability.

New Hampshire almost spent more on education than any other state on this list at $19,443 per pupil in 2021, though it is outspent by several of its northeast neighbors. New Hampshire also received a marginally better grade of C- for its infrastructure in 2017. At $11,793 per capita in 2020, its healthcare spending is the twelfth highest in the nation.

Which Are the Tax-Free States?

As of 2023, Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming are the only states that do not levy a state income tax. Note that Washington does levy a state capital gains tax on certain high earners.

Why Do States Charge a State Tax?

Following the adoption of the U.S. Constitution, the federal government was granted the authority to impose taxes on its citizens. Each state also retained the right to impose what kind of tax it wanted, excluding any that are forbidden by the U.S. Constitution as well as its own state constitution. These states fund their governments through tax collection, fees, and licenses.

Which States Don’t Tax Retirement Distributions?

Twelve states do not tax retirement distributions. Illinois, Mississippi, and Pennsylvania don’t tax distributions from 401(k) plans, individual retirement accounts (IRAs), and pensions. The remaining nine states that don’t levy a state tax at all are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Alabama and Hawaii also don’t tax pensions but they do tax distributions from 401(k) plans and IRAs.

Which States Tax Social Security Benefits?

There are only 12 U.S. states that tax Social Security benefits: Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia.

The Bottom Line

Despite the challenges no-tax states face, some seem to find a balance among low taxes, affordability, and providing a great place to live. Others struggle. One thing is clear: Low taxes alone do not provide a complete picture of the cost of living for any state.

Leave a Comment