Tax Burdens By State In America
Death and Taxes. We’ve all heard the saying. Taxes aren’t fun, but I think most of us would agree some level of taxation is necessary for a society to operate. Now exactly how much is necessary is a whole ‘nother ball of wax. And since this blog bans political discussions we’re just not going to go there.
But taxes can have a serious impact on your journey to financial independence. Federal taxes are the same everywhere and have just undergone a big overhaul. This post is not about the new Federal Tax Bill. Use your Google machine to read about that if you’d like, there’s plenty out there.
This post is about state taxes and using the overall burden of each state’s respective taxes as an opportunity to consider geoarbitrage in the US.
Wallet Hub ran this article and analysis last spring about overall tax burdens by state in the U.S. They used three taxes in their weighting – property taxes, individual income taxes, and sales & excise taxes. They measured these as a share of personal income for each resident of the state. They then simply added the three percentages up to get a final percentage.
Scenario #1
In the first scenario you are still working full time, you have a house, and you of course buy stuff to live. So all three taxes affect you. This is the scenario mapped in the Wallet Hub article so I’m posting their map. Click on a state to get the numerical rank:
This is a very simple methodology, but obviously has flaws.
For instance, if you’re a renter you don’t pay property taxes. So while New Jersey ranks 7th overall out of 50 for the state with the highest combined tax burden, if you take out their very high 5.31% property tax rate they would drop substantially.
This Is Supposedly Bon Jovi’s House In NJ On Google Maps
#HeMightPayMoreToHaveThe27ToiletsCleanedThanHisPropertyTaxes
#NewJerseyGivesPropertyTaxesABadName
Additionally, if you’re retired it’s very likely that your income has dropped substantially, possibly to zero. So the income tax portion of the three taxes might not matter to you as much as the other two.
The Wallet Hub map in the article only maps out the data for all three taxes combined (by rank). The chart however does let you sort by either the combined rank, or by any of the three individual taxes respectively (property taxes, individual income taxes, or sales & excise taxes).
What you can’t do with that chart is mix and match and sort by two of the three. So me, being your humble servant and a mapping nerd did the work for you.
Scenario #2
You’re a renter and you have no interest in buying a house. Property taxes do not matter to you but the other two taxes do (income and sales). Here are the combined rates and rankings in that scenario.
| Rank | STATE | Income Tax Burden | Sales/Excise Tax Burden | Combined |
| 1 | Hawaii | 2.64% | 6.52% | 9.16% |
| 2 | New York | 4.76% | 3.63% | 8.39% |
| 3 | Minnesota | 3.59% | 3.78% | 7.37% |
| 4 | Arkansas | 2.33% | 5.00% | 7.33% |
| 5 | California | 3.44% | 3.36% | 6.80% |
| 6 | West Virginia | 2.68% | 4.07% | 6.75% |
| 7 | New Mexico | 1.70% | 5.02% | 6.72% |
| 8 | Kentucky | 3.05% | 3.67% | 6.72% |
| 9 | Maryland | 3.88% | 2.74% | 6.62% |
| 10 | Mississippi | 1.63% | 4.71% | 6.34% |
| 11 | Ohio | 2.66% | 3.64% | 6.30% |
| 12 | Louisiana | 1.42% | 4.86% | 6.28% |
| 13 | Indiana | 2.26% | 3.97% | 6.23% |
| 14 | Maine | 2.58% | 3.50% | 6.08% |
| 15 | Connecticut | 3.24% | 2.83% | 6.07% |
| 16 | North Dakota | 1.16% | 4.83% | 5.99% |
| 17 | Utah | 2.61% | 3.33% | 5.94% |
| 18 | North Carolina | 2.66% | 3.25% | 5.91% |
| 19 | Nevada | 0.00% | 5.90% | 5.90% |
| 20 | Illinois | 2.66% | 3.20% | 5.86% |
| 21 | Vermont | 2.29% | 3.50% | 5.79% |
| 22 | Alabama | 1.85% | 3.93% | 5.78% |
| 23 | Wisconsin | 2.66% | 3.05% | 5.71% |
| 24 | Kansas | 1.87% | 3.76% | 5.63% |
| 25 | Arizona | 1.35% | 4.28% | 5.63% |
| 26 | Pennsylvania | 2.54% | 3.05% | 5.59% |
| 27 | Iowa | 2.40% | 3.13% | 5.53% |
| 28 | Washington | 0.00% | 5.47% | 5.47% |
| 29 | Nebraska | 2.33% | 3.10% | 5.43% |
| 30 | Missouri | 2.28% | 3.15% | 5.43% |
| 31 | Georgia | 2.29% | 3.11% | 5.40% |
| 32 | Massachusetts | 3.29% | 2.06% | 5.35% |
| 33 | Rhode Island | 2.15% | 3.14% | 5.29% |
| 34 | Idaho | 2.20% | 3.05% | 5.25% |
| 35 | Colorado | 2.12% | 3.11% | 5.23% |
| 36 | Oklahoma | 1.69% | 3.54% | 5.23% |
| 37 | Michigan | 2.05% | 3.17% | 5.22% |
| 38 | Oregon | 4.02% | 1.14% | 5.16% |
| 39 | South Carolina | 1.92% | 2.97% | 4.89% |
| 40 | New Jersey | 2.32% | 2.51% | 4.83% |
| 41 | Virginia | 2.61% | 2.08% | 4.69% |
| 42 | Texas | 0.00% | 4.42% | 4.42% |
| 43 | Tennessee | 0.09% | 4.30% | 4.39% |
| 44 | South Dakota | 0.00% | 4.29% | 4.29% |
| 45 | Florida | 0.00% | 4.03% | 4.03% |
| 46 | Montana | 2.56% | 1.34% | 3.90% |
| 47 | Delaware | 2.59% | 1.17% | 3.76% |
| 48 | Wyoming | 0.00% | 3.52% | 3.52% |
| 49 | Alaska | 0.00% | 1.43% | 1.43% |
| 50 | New Hampshire | 0.13% | 1.24% | 1.37% |
States That Dropped Down The Rankings The Most In This Scenario:
- New Jersey went from 7th to 40th
- Rhode Island went from 8th to 33rd
States That Went Up The Most In The Rankings:
- Alabama went from 43rd to 22nd
- North Dakota went from 36th to 16th
If you want to see this data by geography to see if a nearby state might be a better option for you in this scenario, here’s the map. The darker reds are higher and lighter colors are lower combined income and sales tax burden.
Scenario #3
In this scenario you are retired and your income is now substantially reduced. Or, perhaps you don’t want to side hustle at all and have no dividend income etc and you’re completely living off your investments, using the 3.5% or 4% drawdown rule.
Income taxes in this scenario are not your main worry, but you do own a house or you’d like to move to another state and buy a house to grow some roots, so property taxes are still a concern. Here’s the results:
| Rank | State | Property Tax Burden | Sales/Excise Tax Burden | Combined |
| 1 | Hawaii | 2.11% | 6.52% | 8.63% |
| 2 | Vermont | 4.96% | 3.50% | 8.46% |
| 3 | Nevada | 2.35% | 5.90% | 8.25% |
| 4 | New York | 4.55% | 3.63% | 8.18% |
| 5 | Washington | 2.71% | 5.47% | 8.18% |
| 6 | Maine | 4.65% | 3.50% | 8.15% |
| 7 | Texas | 3.57% | 4.42% | 7.99% |
| 8 | Rhode Island | 4.80% | 3.14% | 7.94% |
| 9 | New Jersey | 5.31% | 2.51% | 7.82% |
| 10 | Mississippi | 2.68% | 4.71% | 7.39% |
| 11 | Illinois | 4.14% | 3.20% | 7.34% |
| 12 | Wyoming | 3.77% | 3.52% | 7.29% |
| 13 | South Dakota | 2.83% | 4.29% | 7.12% |
| 14 | New Mexico | 2.00% | 5.02% | 7.02% |
| 15 | Connecticut | 4.16% | 2.83% | 6.99% |
| 16 | Louisiana | 2.01% | 4.86% | 6.87% |
| 17 | Arizona | 2.59% | 4.28% | 6.87% |
| 18 | Kansas | 3.09% | 3.76% | 6.85% |
| 19 | Arkansas | 1.79% | 5.00% | 6.79% |
| 20 | Florida | 2.76% | 4.03% | 6.79% |
| 21 | Wisconsin | 3.73% | 3.05% | 6.78% |
| 22 | North Dakota | 1.94% | 4.83% | 6.77% |
| 23 | Nebraska | 3.64% | 3.10% | 6.74% |
| 24 | Minnesota | 2.87% | 3.78% | 6.65% |
| 25 | New Hampshire | 5.33% | 1.24% | 6.57% |
| 26 | Iowa | 3.43% | 3.13% | 6.56% |
| 27 | Ohio | 2.85% | 3.64% | 6.49% |
| 28 | West Virginia | 2.38% | 4.07% | 6.45% |
| 29 | Michigan | 3.26% | 3.17% | 6.43% |
| 30 | Indiana | 2.40% | 3.97% | 6.37% |
| 31 | Tennessee | 2.06% | 4.30% | 6.36% |
| 32 | Alaska | 4.84% | 1.43% | 6.27% |
| 33 | California | 2.72% | 3.36% | 6.08% |
| 34 | Pennsylvania | 2.93% | 3.05% | 5.98% |
| 35 | Georgia | 2.80% | 3.11% | 5.91% |
| 36 | Utah | 2.57% | 3.33% | 5.90% |
| 37 | South Carolina | 2.93% | 2.97% | 5.90% |
| 38 | Colorado | 2.74% | 3.11% | 5.85% |
| 39 | Massachusetts | 3.66% | 2.06% | 5.72% |
| 40 | North Carolina | 2.42% | 3.25% | 5.67% |
| 41 | Kentucky | 1.99% | 3.67% | 5.66% |
| 42 | Idaho | 2.50% | 3.05% | 5.55% |
| 43 | Maryland | 2.76% | 2.74% | 5.50% |
| 44 | Missouri | 2.34% | 3.15% | 5.49% |
| 45 | Alabama | 1.41% | 3.93% | 5.34% |
| 46 | Virginia | 2.91% | 2.08% | 4.99% |
| 47 | Montana | 3.61% | 1.34% | 4.95% |
| 48 | Oklahoma | 1.38% | 3.54% | 4.92% |
| 49 | Oregon | 3.24% | 1.14% | 4.38% |
| 50 | Delaware | 1.83% | 1.17% | 3.00% |
States That Dropped Down The Rankings The Most In This Scenario:
- Maryland went from 12th to 43rd
- Massachusetts went from 18th to 39th
States That Went Up The Most In The Rankings:
- Nevada went from 30th to 3rd
- Washington went from 33rd to 5th
- Texas went from 34th to 7th
- Wyoming went from 42nd to 12th
- South Dakota went from 44th to 13th
In the “big movers up” list, most of these states do not have a state income tax, so taking that out of the equation of course moves them up a lot. In other words, if you don’t have income in retirement, the states that do not have an income tax do vary in their respective property taxes and sales/excise taxes.
Here’s the map for scenario #3…
I didn’t run a scenario that takes the sales & excise taxes out of the 3-pronged equation, since the assumption is that everyone has to buy stuff, regardless of your retirement status or whether or not you own a house.
Of note, a few states are low tax no matter how you cut the data by these 3 scenarios.
- Delaware is 50th for scenario#1, and 47th and 50th in the other two scenarios
- Montana is 41st for scenario#1, and 46th and 47th in the other two scenarios
- Oklahoma is 47th for scenario#1, and 36th and 48th in the other two scenarios
Geoarbitrage
I’m not going to get into all the nuances of geoarbitrage. Mr. Groovy, man of trash-picking tendencies has a great post on it and used it to completely overhaul is life for the better and propel him to financial independence. I highly recommend you read his blog.
Of course there are probably other state taxes to consider that might make a prospective move a bad idea, even though the three criteria in this post might not reflect it. For instance if you drive a lot you might want to consider each state’s respective gas tax.
Be sure to check out my Geoarbitrage Resources Page that has tons of great tools to help you find your perfect location.
I hope this article and the ranking of tax burdens can be of value if you or someone you know is considering geoarbitrage in the USA and wants to use taxes as a factor in where to go. If not, I hear Bon Jovi’s having a party Saturday night and I call dibs on the East wing!!
i just wrote something like this. even used the same wallethub article. we live in new york state ang get boned in every scenerio! i suspected that when i was looking over our expected tax situation a couple of weeks ago and thought “6% every year for a lifetime? we must be nuts to stay here.” NH and FL look pretty good but we’ve not moving to deleware even if they paid us to do it. ha ha.https://wordpress.com/post/freddysmidlap.com/395
Cool, I just checked out your post, didn’t know that you did that. I’m considering NH myself for the future as well since I hate our brutally hot summers here in DC and I love winter sports.
Thanks for the comment!
it’s a really nice state if you ever get to spend some time there.
Here in California our state taxes are under 4% as long as our income is below $60,000, which prompted Big ERN to refer to us as “low tax” California! Your analysis here shows it similarly. Nice job.
As a successful FI enthusiast, we are rapidly growing our IRAs and keeping income low enough for Obamacare subsidies right now. Which means when the RMDs hit, we might get kicked up to the high state income tax rates of close to 10%. Then it’s time for Geoarbitrage. These tables are great for planning. Thanks!
Cool, didn’t know about that 4% rule in Cali. They have the rep of being so high tax but I guess it’s a bit more complex than that.
Thanks for the comment Susan!
I was gonna ask how this was calculated, but I went and looked. Because CA has some weird things. As Susan said, if you don’t make much money, you can be ok, but as soon as you make any amount of money, you get hammered. Anything over $30K is 6%, $40k is 8% and $50K is 9.3%. So as long as you can keep the income low, you aren’t awful. https://www.tax-brackets.org/californiataxtable
The other thing is that they tax capital gains as regular income… BLAH!! So, you might skip the feds on Cap Gains, but CA taxes it all.
The Sales tax is pretty obnoxious as well, where we are it’s ~9%.
Our one redeeming factor is Property tax, that is capped on the increase, and they keep trying to remove that. But yeah… we rent so ehh…
Anyway interesting to look at!
Yeah since most states have tiered rates the Wallet Hub article is obviously simplifying. You and Susan just changed my perception about Cali though, with a low income in retirement it could still be an option. But the cap gains being taxed as regular income sucks!
Thanks for stopping by dude!
I’m in love with the idea of geoarbitrage but in reality we are unlikely to leave our families and jobs. We will remain in HCOL Chicago.
Families especially are more important than money so you’ve got your priorities straight!
I like that Virginia has some pretty consistent rankings and was 40, 41, and 46. It seems I’m in a good state (commonwealth) regarding taxes and geoarbitrage. Maybe I’ll stay for awhile. I just need to work on my boss to allow me to work in the Tampa office over the winter!!!
Yep, I grew up in Maryland which is pretty high-tax all around and when I moved to Virginia everything dropped a lot. Needless to say I was pleased.
Good luck with the Tampa request!
Ahem, what if I wanted to *know* for sure that I’m paying a ton of taxes in DC? I feel so left out!
It’s interesting that NC is #28, #18 for scenario 2 (which would be cheaper than DC but not as low as I suspected!), and #40 in scenario 3. Good to know I should maybe just retire in my home state!
DC always gets left out of articles like this… I suspect they’d be pretty high in most rankings but not at the Hawaii or NY levels.
Home is calling you back 🙂
Interesting post.. thanks for doing the work for us on this!
It is pretty amazing how much these differ state to state, even ones right next to each other. It would be interesting to look into the background of how each state determines what their rates will be and if that affects who they’re trying to attract/repel/etc.
This is something I’ve been intrigued by and will absolutely need to account for in retirement.
I imagine each state’s respective tax laws probably came about due to diverse and complicated histories. I’m a history buff so I agree, it would be fascinating to learn about some of those reasons.
Thanks for the comment!
What that doesn’t take into account is the cost of the property itself. I am talking about scenario 3. We live in Massachusetts (rank 39), and our property taxes are about USD 9,000 per year. That will be our greatest expense when we retire (and I finally bring the grocery expenses down)
Wow, $9k a year is pretty steep. But yes, the higher the property assessment the more you pay. Factoring in average real estate costs into these rankings would be interesting. But then you start having lots of variables and it gets complicated.
Yes, I agree. On a positive note, I have given you enough ideas for a series of posts! Do you want to work on it together?
Ha, not sure I would pursue that as it’d be complex. This one was mostly WalletHub’s work, I just re-jiggered!
No problem! I might do it. Will link to your post if I do.
Oregon data is wrong. Most people pays between 9 to 10% income tax. It’s only 5% on the first $3,350 of income. I don’t understand how they get 4% income tax.
Also, I don’t think it’s valid to add income tax and sales tax. Income tax should weight more. We spend less than 50% of our income. I feel like Oregon should be higher on the list. Maybe it’s Portland. We have more local taxes especially for business owners.
Interesting Joe. The WalletHub article doesn’t go into how they dealt with tiered tax brackets. They obviously in some way condensed states that have multiple brackets into one somehow, but they don’t say how.
I just checked and yes, Oregon has a 5-bracket system. And you’re right, the first is $3350 and then goes up. So if they averaged somehow, a total of 4% seems low indeed.
As for the income vs sales, in your case income tax is way more important. You guys are so frugal! But for lower income people we have to remember they make way less and are forced to spend a much higher percentage of their incomes.
Their methodology obviously has flaws and is pretty simplistic, but if you try to break each tax apart and deal in more specifics it would get complicated real quick with 50 states and tons of rules!
Thanks for the comment!
Great post. The wallet hub chart is very intresting. I love all the different takes people have on state taxes and geo arbitrage. I also referenced the wallet hub tool in a recent post. http://www.thefrug.com/are-you-paying-a-sucker-tax/
It was great meeting you at the ONL meetup in DC enjoying the blog.
PS In addition to being the top FI tax haven, Delaware has some of the best beaches in the county and some very affordable real estate, a short bike ride from beaches and huge state parks.
Yes, great meeting you as well! I grew up in Baltimore, so I’m very familiar with DE beaches. Including chunks of time in my misspent youth at Dewey Beach. But for some reason I can’t remember those trips 🙂
Thanks for stopping by!
I’m just curious about Scenario #2. As a renter I’d say that you are still affected by property tax. You aren’t personally responsible for the taxes as a renter, but landlords are definitely factoring (and covering) their property tax obligations into your rent. If you have roommates you’re portion of that tax is dividend amongst the tenants within the rent, but it is still a factor.
It’s a valid point and one that I thought about, but there was no way to separate it in the data. I do think many or perhaps most landlords factor in property tax costs into their tenants rent, but I doubt it’s a one for one. Just from personal experience, the house next to mine is rented. The rent for the tenants has not gone up in 4 years, but our property taxes have gone up in that time twice. So I don’t think the two are always in sync.
But the point is still a good one. Thanks for the comment!